Amid claims concentrated markets are creating a “stock picker’s market” for active managers, Dimensional has argued the evidence does not support that view and has outlined other ways investors can seek to outperform.
Speaking to Investor Daily, Dimensional senior investment director and vice president Slava Platkov pushed back on the long-held view that concentrated markets favour active managers, a narrative that often resurfaces during periods of elevated concentration.
“There is this notion out there that the current level of concentration that we’re seeing in the US technology segment, in particular, means that there is what they call the “stock pickers market.”
“There are these under-appreciated, underresearched companies out there, and this is a great opportunity for traditional stock pickers to take advantage of and outperform going forward,” Platkov said.
But after conducting a study into the relationship between market concentration and manager outperformance, the asset manager found “it was not supported at all.”
“What we see is that performance of managers post periods of high concentration has been very much in line with the performance of managers just over the broader period, even when concentration is not high.”
It comes as the rise of mega-cap US tech stocks, the ‘Magnificent 7’, intensified equity market concentration. According to Morgan Stanley analysts, the top 10 US stocks now account for some 33 per cent of total market value.
But while concentration risk is clearly a concern for investors, Platkov argued there are more robust ways to manage it than relying on a traditional stock-picking manager.
First and foremost, he highlighted the importance of value investing — which has recently enjoyed a resurgence — as a key component of any portfolio seeking to outperform the benchmark.
He added that value works well alongside profitability factors, with a focus on quality stocks helping to deliver more consistent returns. Platkov said the approach has been attracting strong client interest, particularly around how ETFs can be used to build these types of portfolios.
Dimensional launched several active value ETFs to the Australian market about two years ago, including the Dimensional Australian Value Trust – Active ETF (DAVA) and the Dimensional Global Value Trust – Active ETF (DGVA).
The asset manager specialises in systematic, or factor-based, investing, which is a rules-driven approach grounded in academic research rather than traditional fundamental analysis.
Across both portfolios, Platkov said performance over the past 12 months has been strong, driven by value stocks and broader global market dynamics.
He noted the fund entered the year overweight energy and diversified materials companies, reflecting their attractiveness on both valuation and profitability grounds, ahead of the supply shock triggered by the Iran war.
“We were coming into this period overweight, and the war has meant that oil prices are now much higher, so those energy companies have performed very strongly.”
According to Dimensional’s US website its international value ETF delivered a 41.27 per cent NAV return over the 12 months to the end of April, outperforming the MSCI World ex-USA Value Index by 6.07 per cent.
Platkov explained what distinguishes Dimensional’s approach is its daily portfolio rebalancing, which he said is particularly important for value stocks.
By contrast, traditional indices typically rebalance every three or six months, which can leave returns exposed to what he described as “style drag.”
It is also highly diversified, with the global value ETF holding hundreds of securities at any one time.
In addition to using value strategies to help reduce concentration risk, he noted that other options include increasing exposure to emerging markets as a way to dial back US tech exposure, as well as allocating more to small caps.
“That’s another way that our investors have been coming to us and talking to us about mitigating that concentration risk.”
