Dimensional Fund Advisor—a $527 billion asset manager known for its systematic investing approach and exclusivity to trained advisors—has officially entered the world of exchange-traded funds.
The company’s very first two ETFs started trading Wednesday, the Dimensional US Core Equity Market (ticker: DFAU) and Dimensional International Core Equity Market (DFAI), charge an expense ratio of 0.12% and 0.18%, respectively. Both funds are actively managed. With relatively low fees, the funds offer a competitive option for investors that want a broad-based core exposure to stocks, but also the benefits of active management from a well-established firm. Another Dimensional ETF tracking emerging market stocks is set to debut in December.
This is just the first step of Dimensional’s plan to offer its popular mutual-fund products in an ETF wrapper. The company announced this week that it will add six more ETFs to the slate in 2021, extending the current suite to a total of nine. The suite of tax-managed mutual funds yet to be converted consists of approximately $20 billion in assets under management, according to the firm, and the management fees are expected to be reduced by 27%, on average, from current levels on an asset-weighted basis.
Existing mutual-fund investors that convert their shares to the lower-cost, more tax-efficient ETFs will not incur additional tax, according to the firm. “We’re pleased to broaden our ETF platform in a way that can help investors manage taxes even more efficiently,” says Dimensional Co-CEO and Chief Investment Officer Gerard O’Reilly.
Earlier this year, industry giant Vanguard Group also started converting some of its mutual-fund assets to lower-cost ETFs by allowing investors in the Admiral share class to shift assets tax-free.
Although ETFs have been attracting a large amount of assets over the past decade, they’ve seen a different level of interest in 2020. The SEC’s regulatory changes in late 2019 have made it easier for ETFs to go to market, and most important, stay somewhat nontransparent to prevent copycats from mimicking the trades of an active strategy and diminishing its returns.
That’s what active managers have wanted for years. Mutual-fund giants T. Rowe Price, American Century Investments, and Fidelity have all rolled out their own semitransparent, actively managed ETFs this year following the rule change. Some smaller asset managers that previously only ran separately managed accounts are also offering their strategies in ETFs to the wider public.
Dimensional’s new ETFs, however, will be fully transparent and disclose holdings everyday. “We have thousands of holdings in our portfolios,” Co-CEO Dave Butler told Barron’s in June when the company submitted the filings. “We are confident that’s not gonna be problematic for us in terms of having a transparent approach to the ETF.”
Dimensional is known for its unique “systematic active approach” that exploits stock factors like smaller size, lower valuations, and price momentum for market-beating returns. The ETF offering is a big deal for the company, particularly, because it used to only sell its products through a network of financial advisors that went through rigorous training and fully understood Dimensional’s investment philosophy.
With the new ETFs, any investor can now access Dimensional’s products. Still, the company said it will remain focused on educating investors about its approach to ensure they benefit from their strategies.