Investors rejoice. DFA funds are now available to retail investors in the form of ETFs. Below we'll explore the ETFs offered by Dimensional Fund Advisors.
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Introduction – Dimensional Fund Advisors (DFA) ETFs
In a nutshell, DFA offers 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. While they are technically actively managed, they are more index-y than the true “active” we usually think of. DFA managers are assembling funds based not on an arbitrary selection of stocks, but rather a systematic compilation of a rigidly defined group of stocks with particular characteristics. They have been converting their mutual funds to ETFs recently and simultaneously lowering fees.
Dimensional Fund Advisors, founded in 1981, led the way in implementing factor-based funds. Its co-founder David Booth was also heavily involved in pioneering index 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 quite a few new ETFs for retail investors, which we'll discuss below, but they've also converted several of their tax-managed mutual funds to ETFs as well.
The Dimensional ETF landscape can be extremely confusing to navigate, and they don't seem to make much of an effort to simplify it. I've tried to make it more understandable by breaking these up into parent categories. Also note all these ETFs are for equities.
Core Equity Market ETFs
First we'll go over 3 new core market ETFs. As the name suggests, these 3 core equity market ETFs are designed to be a broad core holding with light factor tilts. In my opinion, these 3 ETFs don't look terribly different from plain index funds from Vanguard, for example. These may arguably be appropriate for the novice investor dipping their toes into factors.
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%.
DFAI – Dimensional International Core Equity Market ETF
DFAI takes the same approach described for DFAU, 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%.
Tax-Managed Mutual Funds To ETFs Conversion
Dimensional started its conversion of several of its tax-managed mutual funds to ETFs in June, 2021. The following 4 funds are the resulting ETF equivalents.
The name of this section refers to the mutual fund conversions; it's not meant to suggest that these ETFs are more tax-efficient than others on this list. After all, the ETF vehicle is inherently more tax-efficient than a mutual fund.
DFUS – Dimensional U.S. Equity ETF
DFUS used to be DTMEX, the Tax-Managed US Equity Portfolio. This ETF should provide similar exposure to DFAU earlier but at a slightly lower fee of 0.11%.
DFAS – Dimensional U.S. Small Cap ETF
DFAS is formerly the Tax-Managed US Small Cap Equity Portfolio (DFTSX). Its expense ratio has been lowered from 0.43% to 0.33%.
While Dimensional is known for small cap value, keep in mind this ETF broadly covers the small cap space in the U.S. with a light Value tilt.
DFAT – Dimensional U.S. Targeted Value ETF
DFAT is formerly the Tax-Managed US Targeted Value Portfolio (DTMVX). The fund has nearly $6 billion in assets. Its expense ratio dropped from 0.43% to 0.33%.
As the name suggests, this fund does indeed provide significant loading on the Value factor, but is more of a mid-cap value fund than a true small-cap value fund. Its loading on the Size factor is considerably lower than popular small-cap value funds like VIOV and AVUV. It also doesn't seem to care as much about Profitability and Investment, whereas VIOV's underlying index methodology and AVUV's active management provide appreciable exposure to both of these as well.
DFIV – Dimensional International Value ETF
The Dimensional International Value ETF (DFIV) is formerly the Tax-Managed International Value Portfolio (DTMIX), with its expense ratio lowered from 0.50% to 0.35%.
Core Equity 2 ETFs
The “2” in the name for the next few funds means more aggressive factor tilts than the broader funds we covered at the top. So these 4 are still broadly diversified core funds but just with greater factor loadings. As such, these funds are more appropriate for the dedicated factor investor who still wants broad core diversification.
DFAC – Dimensional U.S. Core Equity 2 ETF
The Dimensional U.S. Core Equity 2 ETF (DFAC) is formerly the TA US Core Equity 2 Portfolio (DFTCX), with its fee lowered from 0.23% from 0.19%.
The number “2” in the name means more aggressive factor tilts than the lighter, broader, funds mentioned previously like DFUS and DFAU. Because of this, DFAC is by far the most popular ETF on this list in terms of assets under management.
DFIC – Dimensional International Core Equity 2 ETF
DFIC is the equivalent of DFAC for ex-US Developed Markets. This fund has a fee of 0.23%.
DFEM – Dimensional Emerging Markets Core Equity 2 ETF
DFEM is Dimensional's “Core Equity 2” offering for Emerging Markets, meaning more aggressive factor tilts among developing countries. DFEM has a fee of 0.39%.
DFAX – Dimensional World ex U.S. Core Equity 2 ETF
DFAX is formerly the TA World ex US Core Equity Portfolio (DFTWX), with its fee lowered from 0.30% to 0.25%.
Note that DFAX is the only fund on this list that captures both Developed and Emerging markets outside the U.S. With some hand waving, DFIC + DFEM = DFAX.
These last 3 ETFs are the newest and most concentrated on the list with the greatest factor loadings. That doesn't necessarily make them the “best” funds on the list, though, as these would not really be suitable as a core holding because they are not broadly diversified. As such, they should probably only be used to tilt.
DFSV – Dimensional US Small Cap Value ETF
DFSV is a newer ETF on this list that launched in early 2022. It is inarguably the truest U.S. small cap value fund on this list with vastly superior factor loadings compared to DFAT. Basically, for those wanting an ultra-targeted factor ETF from DFA for US small cap value stocks, DFSV would be the one to go with.
DFSV has a mutual fund equivalent DFSVX that has been around since 1993.
I wrote a separate dedicated post on DFSV here. This fund has a fee of 0.31%.
DISV – Dimensional International Small Cap Value ETF
Think of DISV as the equivalent to DFSV for ex-US Developed Markets. In other words, it provides targeted small cap value exposure in developed countries outside the United States.
DISV has a fee of 0.42%.
DFEV – Dimensional Emerging Markets Value ETF
DFEV rounds out this section for ultra-targeted factor exposure in Emerging Markets. DFEV has a fee of 0.43%.
Where To Buy These DFA ETFs
Thankfully, most of 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, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment 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. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. I mention M1 Finance a lot around here. M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. All examples above are hypothetical, do not reflect any specific investments, are for informational purposes only, and should not be considered an offer to buy or sell any products. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.
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