A record number of new exchange traded funds came to market in 2020, including a large batch of actively managed ETFs like the Dimensional US Core Equity Market ETF (NYSE Arca: DFAU) and Dimensional International Core Equity Market ETF (NYSE Arca: DFAI).
Dimensional Core Equity Market solutions offer broadly-diversified, all-cap core exposure, with an emphasis on securities with higher expected returns using variables such as company size, relative price, and profitability. The Core Equity Market ETFs aim to achieve a light level of tilt from market cap weights and low tracking error to the market through a daily managed approach.
DFAU is already drawing praise in the ETF community with the active fund ranking as one of this year’s best new ETFs, according to some experts.
“Our favorite among the three is Dimensional U.S. Core Equity Market ETF (DFAU). The fund’s process mimics that of its mutual fund predecessor DFA U.S. Core Equity 1 (DFEO). But DFAU delivers that strategy in a wrapper that is more cost-efficient, more tax-efficient, and more widely accessible,” writes Morningstar’s Ben Johnson.
A New Dawn for Active ETFs
The success of DFAU is one example of a fund issuer using a mutual fund as inspiration for success in the ETF space, a theme that’s likely to continue in 2021.
Industry observers expect more issuers of active mutual funds to convert those products to the ETF wrapper to capitalize on asset allocators’ affinity for the ETF structure. Dimensional also announced plans to convert six tax-managed mutual funds into those new ETFs in 2021.
Dimensional will be one of the first asset managers to launch active transparent ETFs using SEC Rule 6c-11 and convert mutual funds into ETFs in this fashion. The suite of tax-managed mutual funds to be converted consists of approximately $20 billion in assets under management.
As for DFAU, it’s off to a solid start.
“While DFAU and DFA U.S. Core Equity 1 charge like fees of 0.12%, investors can buy or sell its shares without paying a commission at a number of brokerages,” notes Johnson. “This is particularly appealing to advisors that are still paying ticket charges to transact in Dimensional’s mutual funds on behalf of their clients. The regular use of in-kind creations and redemptions means that DFAUS will be more tax-efficient than the elder mutual fund, which has regularly distributed modest capital gains distributions in recent years. Finally, broad availability is an interesting departure from DFA’s historical approach to maintaining a selective clientele.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.