Investors rejoice. DFA funds are now available to retail investors in the form of ETFs. Below we’ll explore the 3 ETFs offered by Dimensional Fund Advisors.
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Introduction – Dimensional Fund Advisors (DFA) ETFs
In a nutshell, DFA offers transparent, actively managed funds that provide broad, diversified market exposure with targeted, evidence-based factor exposure in order to both manage risk more effectively and boost expected returns, all at a relatively low cost.
Dimensional Fund Advisors led the way in implementing factor-based funds. Their Board of Directors includes famous names like Eugene Fama, Kenneth French, and Myron Scholes. Merton Miller was one of the original founding board members.
DFA has long been the gold standard for data-driven factor tilts (e.g. Value and Profitability), used by many asset management firms like Buckingham Strategic Wealth and PWL Capital. Previously, Dimensional’s funds were unavailable to DIY retail investors, which is why their launch of ETFs is so exciting.
Recall from my separate post on factor investing that the key is the implementation of factor targeting, which is altogether a different feat compared to the identification of a factor. The appeal of Dimensional is their proprietary, robust, impressive implementation.
DFA’s consistent, academia-derived strategies have been refined over the course of 40 years. They aim to focus on capturing the Market, Size, Value, and Profitability factor premia while maintaining portfolio diversification across cap sizes and geographies as well as minimizing turnover, trading costs, and tax impact.
So far DFA has released 3 ETFs, which we’ll discuss below, but they’ve stated they have plans to introduce more soon.
DFAU – Dimensional U.S. Core Equity Market ETF
As the name suggests, the Dimensional U.S. Core Equity Market ETF (DFAU) aims to provide broad U.S. market exposure, with an active, light tilt toward smaller stocks (Size) with strong profitability metrics (Profitability) and a lower relative price (Value). Think basically a U.S. stock market index fund that skews toward smaller stocks that we should expect to outperform the market over the long term based on the research.
In its extremely short lifespan thus far since January 2021, DFAU has outperformed the S&P 500 index, and with lower volatility. Hopefully the Value premium is making a resurgence.
DFAU has an expense ratio of 0.12%, which I think is well worth its appreciable factor loading.
DFAI – Dimensional International Core Equity Market ETF
DFAI takes the same approach described for DFAU above, but this time for Developed Markets outside the United States. If you desire factor exposure outside the U.S., DFAI is a reasonable solution. On the other hand, you may be content with factor exposure in U.S. stocks and a simpler, cheaper international equities fund like VXUS from Vanguard. This factor targeting in Developed Markets comes at a cost; DFAI has an expense ratio of 0.18%.
DFAE – Dimensional Emerging Core Equity Market ETF
Lastly, DFAE applies Dimensional’s approach to Emerging Markets. I’m a fan of overweighting Emerging Markets relative to Developed Markets in a US-heavy portfolio, as Developed Markets are highly correlated to the U.S.
This fund has the highest expense ratio of the three at 0.35%.
Where To Buy These DFA ETFs
Thankfully, all the above DFA ETFs should now be available at any major broker. My choice is M1 Finance. The broker has zero trade commissions and zero account fees, and offers fractional shares, dynamic rebalancing, intuitive pie visualization, and a sleek, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.