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Dimensional is offering ETF's!

At Seaborn, I'm dancing a little jig; I've been hoping this day would come for a while, but wasn't sure how it would happen. And now it's arrived: Dimensional is offering ETF's! (Full disclosure: yes, Seaborn primarily uses Dimensional for its investment management funds, because their research-based approach dovetails nicely with ours.)


Meanwhile, I know that there's a 95% chance you're thinking: "Who is Dimensional? And why do I care?"


Fair enough! So let's talk about that, and then let's talk about the ramifications for your portfolio.


Who is Dimensional?


Dimensional Fund Advisors is a "money manager", a mutual fund company like Vanguard or Goldman Sachs. I've written about them at length, but the summary is this: they sit in an unusual space in being not-quite-active, and not-quite-passive. They follow an index, but the index is of their own devising, and they have flexibility in how they trade to it. And this index, rather than being purely weighted by market capitalization, is weighted by "investment factors" shown to increase the odds of outperformance. They're also quite low-cost, and though they're not as low-cost as e.g. Vanguard, they seem to come close enough.


So why haven't you heard of them? Simple: because until very, very recently, you couldn't invest in them unless you had a financial advisor who was certified to work with them. (They decided early on to make this short-term detriment, long-term benefit play, knowing that financial advisors who were on board with their approach would be less likely to jump in and out of the funds and cause cash flow/capital gains issues.)


Um...remind me about ETF's?


And for those of you who don't eat, sleep and breathe investments, ETF's are Exchange Traded Funds. Like mutual funds, they allow you to invest in a diversified set of investments through a single vehicle; however, they have a few features that make them more efficient, from a cost and tax perspective. (Here's more detail on that front.)


While the increased efficiency is the part that makes me super-happy, here's the part that you are more likely interested in: these Dimensional ETF's are/will be publicly available -- now, for the first time, anyone with a brokerage account will be able to invest in DFA funds!


Great! What are the details, then? Exactly what funds are available, and when?


DFA opened up its first ETF offerings last fall, adding the ability to invest in their core equity offerings for US, international, and emerging markets.


This year, they're doing something especially interesting: they're taking six of their tax-managed mutual funds and converting them, in their entirety, to ETF's! Their filing with the SEC is this month; once that's done, we'll get a better idea of what the timeline is for the conversion. The lineup is here; as you can see, it's still all equities, but with tilts towards those investment factors I mentioned earlier. Yes, Dimensional offers fixed income funds, and no, there are no ETF's for them (yet).


Should I invest in these DFA ETF's?


Not knowing you or your situation, of course I can't make a recommendation. However, I can give you two important datapoints, so you can judge for yourself.


  • DFA ETF's are slightly more expensive than their base index counterparts. For example, the upcoming DFA US Equity ETF will cost 0.08%, while the Vanguard Total Market ETF (VTI) is 0.03%; DFA's International Core Equity ETF (DFAI) costs 0.18%, while Vanguard's Total International Stock ETF (VXUS) is 0.08%.

  • DFA ETF's are tilted towards investment factors, such as value, small size, profitability, and momentum. Over time, these have been empirically shown to increase the odds of outperformance; however, "increasing the odds" is not the same as guaranteeing! For example, the "value" factor has been absolutely smashed by growth stocks over the past few years, mostly due to the explosive growth of tech. (Of course, the last time this happened was in the late 90's, and when the tech bubble burst, value made up for all its lost ground and then some.)


So as you can see, the answer primarily lies in what your overall investment policy is! Speaking of which, now might be a good time to create or update your Investment Policy Statement; ideally, it should make a decision such as this relatively simple!



Britton is an engineer-turned-financial-planner in Austin, Texas. As such, he shies away from suits and commissions, and instead tends towards blue jeans, data-driven analysis, and a fee-only approach to financial planning.