The popularity of active ETFs has recently increased noticeably throughout the fund sector. A combination of more competition, stronger marketing initiatives, lower fees, and the tendency for mutual funds to convert to ETFs can be blamed for this rise in popularity. The previous point has been important. 80% of respondents from the Americas said they would be more likely to invest in an active strategy if it were packaged as an ETF rather than a mutual fund, according to the 2023 Trackinsight Global ETF Survey. Dimensional Fund Advisors (DFA) is a notable company leading this evolution. In the past, DFA was renowned for its exclusive mutual funds, many of which were only accessible to financial advisors, and a distinctive investing strategy based on its expertise in factor investing. Wes Crill, senior investment director and vice-president at Dimensional Fund Advisors, says, “We are encouraged by the strong adoption of our ETF suite, which has further cemented our place as the industry’s largest active ETF issuer and indicates our solutions are helping to meet investor demand. “In collaboration with the financial professionals we work with, Dimensional will continue to expand our offering to provide broader access to systematic active strategies across asset classes.”
The Dimensional US Core Equity Market ETF (DFAU) and the Dimensional International Core Equity Market ETF (DFAI) were the first two active transparent ETFs that DFA introduced on the NYSE ARCA in November 2020, marking the company’s entry into the ETF market. Another significant achievement came in June 2021 when the company launched the now well-known trend of converting mutual funds to actively managed ETFs by doing so with four of its most well-liked mutual funds, all of which were listed on the NYSE. These included the Dimensional US Targeted Value ETF (DFAT), Dimensional US Small Cap ETF (DFAS), Dimensional US Equity ETF (DFUS), and Dimensional US Core Equity 2 ETF (DFAC). Furthermore, Dimensional, now among the largest active ETF issuers in the market, recently filed an application with the SEC for an exemption in July 2023, paving the way for the provision of ETF share classes for its US mutual funds. This happened when Vanguard’s patent ran out of time, which I discussed in an earlier piece. This action’s justification is based on the idea of mutual benefit. First, by reducing transaction costs and improving tax efficiency, existing mutual fund class shareholders stand to gain. Prospective ETF class investors will also benefit from this structure’s advantages, including cost-effective rebalancing using mutual fund cash flows and a decrease in overall portfolio transaction costs.
As of August 21, 2023, four DFA ETFs rank in the top 10 actively managed ETFs by largest assets under management, or AUM, as determined by the ETF Central screener. The Dimensional US Core 2 ETF (DFAC), which is now in third position and has approximately $21 billion in AUM, has had about $329 million in net inflows over the past month. DFAC currently levies a net expense ratio of 0.17%. This ETF emphasizes value companies while reflecting the makeup of all U.S. market ETFs. In contrast to other passively managed index funds, its portfolio has a lesser concentration in huge mega-cap growth stocks like Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). It is designed to be a low-cost, actively managed core portfolio investment, as its name suggests. The Dimensional US Marketwide Value ETF (DFUV) and the Dimensional US Targeted Value ETF (DFAT), with $8.7 and $8.3 billion in AUM, respectively, in fifth and sixth place, are both exchange-traded funds. DFUV is benchmarked to the Russell 3000 Value Index and has a wide market value-only focus. DFAT, on the other hand, is benchmarked on the Russell 2000 Value Index and has a definite small-cap value focus. DFAT levies a 0.22% expense ratio, compared to 0.22% for DFUV. The Dimensional US Equity ETF (DFUS), which is benchmarked to the Russell 3000 Index like DFAC, offers investors with exposure to the whole U.S. equity market. But in contrast to DFAC, DFUS has a less value-oriented bias, with its holdings of companies like Apple and Microsoft being more in line with their typical market-cap weights. It does, however, offer the lowest expense ratio (0.09%) among the four ETFs.
Please note that this article does not offer any instructions or suggestions regarding investment decisions. Therefore, it is essential that you carefully evaluate your financial situation and conduct thorough analysis, or seek advice from a qualified professional, before making any investment decisions.