Dimensional ETFs launch as quant plans to convert mutual funds

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Dimensional Fund Advisors’ ETFs begin trading today, a first step as the quant giant prepares to convert around $20 billion of mutual funds into the new wrapper.

The $527 billion manager based in Austin, Texas, released two actively-managed products, one focused on U.S. equities and the other on international stocks. Another fund tracking emerging market equities is slated to debut in December.

“We believe our mutual funds and ETFs will stand side by side,” said Gerard O’Reilly, DFA’s co-CEO and chief investment officer.
“We believe our mutual funds and ETFs will stand side by side,” said Gerard O’Reilly, DFA’s co-CEO and chief investment officer.

This comes a day after DFA announced plans to convert six of its tax-managed mutual funds into ETFs, giving the firm nine ETF offerings in total, a massive debut that highlights the growing interest in ETFs from across the financial world.

“We believe our mutual funds and ETFs will stand side by side,” said Gerard O’Reilly, DFA’s co-CEO and chief investment officer. “Some investors prefer mutual funds, some investors prefer ETFs.”

The new Dimensional US Core Equity Market ETF (DFAU) has a 0.12% expense ratio, while the Dimensional International Core Equity Market ETF (DFAI) charges 0.18%.

“While investors have other, cheaper options to get exposure to large cap core equities, this is near or almost as cheap, but yet with the benefits of being actively managed,” said Todd Rosenbluth, director of ETF research for CFRA.

The firm’s mutual fund transformations alone will result in about $20 billion of its assets moving into ETFs, making them some of the largest actively managed funds on the market, Rosenbluth said.

The conversion will also potentially be a first for the $5.1 trillion industry, although another issuer Guinness Atkinson Funds is currently working to convert three of its products.

In addition, industry giant Vanguard is converting some of its holdings to lower-cost ETFs, although they are formatted as a share class within the firm’s mutual fund business.

But DFA is not abandoning its mutual fund endeavors, and recently cut fees on 33 equity products by 15% on an asset-weighted basis.

“We’ve launched 30 new mutual funds over the past five years to meet client demands and investors’ needs, and I expect we’ll launch more in the coming years, as I expect we’ll launch additional ETFs in the coming years,” O’Reilly said.

“Their top holdings are focused on those companies that have benefited in a post-COVID world,” an expert says.
November 4

Ben Johnson, Morningstar’s global director of ETF research, said that it was just going to be a matter of time before DFA shifted to ETFs: “I don’t think it could’ve afford to wait much longer.”

“Your clientele here is going to be acutely tax sensitive,” he added. “They’ve self-selected into a portfolio that is going to be managed with these tax sensitivities in mind.” —Additional reporting by Casey Wagner and Justina Lee

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