Dimensional launches systematic California muni bond ETF

Jul 4th, 2023 | By | Category: Fixed Income

Dimensional Fund Advisors has launched an actively managed fixed income ETF that seeks to harvest factor risk premia within the Californian municipal bond market.

Dimensional launches systematic California muni bond ETF

Dimensional’s newest fixed income ETF seeks to harvest term premia within the Californian municipal bond market.

The California Municipal Bond ETF (DFCA US) has been listed on NYSE Arca, coming to market with approximately $40 million in initial assets.

The fund invests in investment-grade securities that are exempt from state taxes in California. Revenue bonds, general obligation bonds, industrial development bonds, municipal lease obligations, commercial paper, and variable rate demand obligations are all eligible for inclusion.

A torchbearer for factor-based investing, having refined its approach over a period of four decades, Dimensional utilizes a daily, flexible process that seeks to position the portfolio for benchmark-beating returns based on information contained within market prices and yield curves.

Specifically, the fund targets a credit quality similar to the S&P Intermediate Term California AMT-Free Municipal Bond Index while also maintaining a dollar-weighted average duration of no more than one-half year greater than, and no less than one year below, the average duration of this benchmark.

Within these limits, Dimensional seeks to capture returns attributable to term premia, the expected relative return from investing in longer-dated securities compared to shorter-dated securities, when this factor is perceived to be favourable.

The ETF comes with an expense ratio of 0.19%, a price tag that positions the fund amongst the cheapest 5% for its Morningstar category.

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