Dimensional Fund Advisors, the $500 billion standard-bearer for systematic factor investing, is prepping up to make its full ETF debut with the launch of three actively managed funds planned for later this year.
Giant quant house Dimensional is prepping up to make its full ETF debut later this year.
The ETFs will deliver broadly diversified US, international, and emerging markets equity exposures, while incorporating Dimensional’s quantitatively driven investment process.
Dimensional’s systematic investment approach, which effectively underpins all strategies managed by the firm, regardless of asset class, region, or investment vehicle, draws insights from financial research to emphasize areas of the market with higher expected returns.
Unlike the majority of active managers, the firm’s assertion that its approach produces incrementally enhanced returns over time appears to have credibility. Indeed, the firm boasts that 81% of its equity and fixed income strategies have outperformed their benchmarks over the past 20 years compared to only 17% for the industry. (It should be noted, however, that the firm’s compliance disclosure on this claim extends to 355 words!)
Gerard O’Reilly, Co-Chief Executive Offer and Chief Investment Officer, said, “Our investment process has always focused on delivering the benefits of conventional passive—low-cost, diversified solutions—with the advantages of systematic active—higher expected returns, flexible trading, robust portfolio management, and risk management.”
Dave Butler, Co-Chief Executive Officer, added, “For nearly four decades, we have built our investment offering thoughtfully and systematically. We take the time to understand clients’ evolving needs, identifying where we can uniquely add value, and ultimately aim for both a better investment experience and higher returns. The long-term outperformance and high survivorship rate of our solutions compared to the industry are testament to the value provided to our clients.”
The three inaugural ETFs will be the Dimensional US Core ETF, the Dimensional International Core ETF and the Dimensional Emerging Markets Core ETF.
The security selection process driving these ETFs will consider a company’s size, value, and profitability relative to other eligible companies. The process will take into account company ratios such as price to book value, price to cash flow, price to earnings, and earnings from operations relative to book value or assets. It will also consider factors such as free float, momentum and liquidity, as well as environmental, social or governance (ESG) characteristics.
The funds will be managed by Jed Fogdall, Global Head of Portfolio Management, Joseph Hohn, Vice President and Portfolio Manager, Lukas Smart, Vice President and Senior Portfolio Manager, and Allen Pu, Deputy Head of Portfolio Management, North America.
Traditionally, Dimensional has offered investment strategies through mutual funds, separate accounts, and commingled trusts. But the company has dipped its toe in ETF waters before. Back in 2015 it created a suite of indices to underlie a series of multifactor ETFs rolled out by John Hancock, and in 2017 it entered into a similar sort of arrangement with Manulife on a suite of ETFs in Canada.
The leap into launching its own ETFs appears to have been driven by client demand – investors are increasingly showing a preference for ETFs over other investment product wrappers – and regulatory tailwinds, most notably the SEC’s passing of the so-called ETF Rule in September 2019.
This ruling allows ETFs that satisfy certain conditions to operate without first obtaining individual ‘exemptive relief’ (a long-winded process) and permits the use of ‘custom baskets’ that do not mirror the underlying holdings of the ETF.
The company hasn’t yet disclosed information on the funds’ fees or listing venues.