Dimensional and William Blair brief ISERS board on emerging‑markets strategies, recent performance

Dimensional Fund Advisors and William Blair presented updates on their emerging‑markets strategies to the Imperial County Employees’ Retirement System (ISERS) board at the board’s May 21, 2025 meeting, outlining why recent market behavior drove near‑term underperformance and how each firm is positioning for potential rebounds.

The presentations matter because ISERS’ allocations to emerging‑markets managers are a material part of the system’s equity exposure and short‑term performance changes can affect the portfolio’s relative return and rebalancing decisions.

Ted Simpson, regional director and vice president for Dimensional Fund Advisors, said the firm’s emerging‑markets all‑cap value strategy leans into three long‑term drivers: smaller capitalization stocks, cheaper (value) relative price, and profitability. Simpson told trustees the strategy “is very broadly diversified, thousands of securities, low fees,” and described the manager’s process as “process driven” and academic in orientation rather than forecast‑based. He attributed recent underperformance to two main forces: inclusion of small‑cap stocks (which underperformed in the most recent quarter and trailing 12 months) and a profitability headwind that favored lower‑profitability names over the past year. Simpson noted markets had rebounded late in the quarter: “As of last Friday, we can see that, actually, the markets have come back, so that, for the quarter, the market is up 5 and a half percent.” He said the portfolio remains positioned for long‑term premia while accepting that short periods of underperformance occur.

William Blair presenters Renee McGrail, senior client relationship manager, and Vivian Lil Thruster, CFA and partner, described a quality‑growth stock‑picking approach for their emerging‑markets growth mandate. Vivian Lil Thruster said the team combines on‑the‑ground fundamental research with a proprietary quantitative tool called “Summit” to screen and monitor ideas. “We are quality growth investor, being that we look for the best companies with the strongest returns and growth and then corporate fundamentals,” she said. William Blair acknowledged a challenging market backdrop since the board funded the strategy in mid‑2024, driven by factor rotations (cheaper valuation stocks outperforming) and sector‑specific shocks such as changes in demand for AI‑related semiconductors that pressured Taiwan and Korean tech holdings.

William Blair provided portfolio characteristics showing the fund’s holdings score higher on quality metrics (return on equity, cash‑flow ROIC, reinvestment rate and forward earnings growth) than the benchmark, while trading at a valuation premium that the managers said had narrowed recently. The managers noted China exposures and changes in allocations were driven by their investment process, not country targeting; they described India as a large position and said Latin America exposure is opportunistic where fundamentals and political cycles support it.

Trustees asked managers about tariffs, geopolitical risk and whether the firms would materially change their processes. Dimensional’s Simpson repeated that the firm does not try to forecast policy shifts; it uses observed pricing and implementation levers such as momentum screens and liquidity execution to avoid “catching a falling knife.” William Blair described portfolio actions to reduce exposure to export‑driven companies and emphasize domestic consumption and higher‑conviction names in the current tariff uncertainty.

Both managers provided materials and answered questions; the board did not take action on the presentations but will use the information when reviewing manager performance and future allocation decisions.

Ending: The presentations will be included in the meeting record and the managers’ decks were provided to the board for later review; trustees said they would revisit the managers’ trailing performance when discussing quarterly results and allocation rebalancing.