Dimensional Fund Advisors has launched a trio of new ETFs which are the firm’s first to incorporate sustainability criteria.
Dave Butler, co-CEO of Dimensional Fund Advisors.
The three funds, which target US, developed ex-US, and emerging market equities from across the market capitalization spectrum, harness Dimensional’s systematic investing capabilities to harvest multiple factor risk premia.
Listed on NYSE Arca, they are the Dimensional US Sustainability Core 1 ETF (DFSU US), Dimensional International Sustainability Core 1 ETF (DFSI US), and Dimensional Emerging Markets Sustainability Core 1 ETF (DFSE US).
DFSU, DFSI, and DFSE have expense ratios of 0.18%, 0.24%, and 0.41%, respectively. Each fund has come to market with approximately $50 million in initial assets under management.
Dave Butler, co-CEO of Dimensional Fund Advisors, said: “Dimensional is dedicated to providing financial professionals with high-quality solutions to meet investors’ needs and align with their values, including growing interest in sustainability. The new ETFs build on Dimensional’s experience in managing sustainability strategies in mutual funds and separate accounts over the past decade.”
Gerard O’Reilly, co-CEO and CIO of Dimensional Fund Advisors, added: “Our teams have conducted extensive research into ESG considerations and developed a measurable approach to systematically integrating sustainability data into our portfolios. Our approach applies what we believe is the best available data to help investors incorporate their sustainability values in portfolios without sacrificing sound investment principles.”
Investment approach
Each ETF is designed to emphasize multiple long-term drivers of expected returns while balancing risk by diversifying across countries (for DFSI and DFSE), sectors, and companies.
Specifically, the funds deliver broad exposure to their respective universes while tilting weights in favour of companies with smaller sizes, lower relative value (based on price-to-book value, price-to-cash flow, or price-to-earnings ratios), and higher profitability (based on earnings-to-book value or profits-to-book value ratios).
Additionally, the ETFs underweight companies with inferior sustainability profiles and overweight those with superior ESG profiles. Dimensional considers a firm’s greenhouse gas emissions, fossil fuel reserves, land use, biodiversity impact, involvement in ESG-related controversies, operational waste, and water use when evaluating a firm’s sustainability profile.
Companies with business operations linked to weapons, tobacco, palm oil, coal, private prisons, and factory farming will not eligible for inclusion in the portfolios.
Dimensional has also filed to introduce its first sustainable multi-factor fixed income ETF – the Dimensional Global Sustainability Fixed Income ETF – which is expected to list later this month. The broad USD aggregate bond fund will weight its securities in order to capture credit and term factor risk premia while also delivering an enhanced ESG profile.