Dimensional Fund Advisors announced plans to launch six new actively managed ETFs.
Additionally, Dimensional also announced plans to convert six tax-managed mutual funds into those new ETFs in 2021. The new ETFs will extend Dimensional’s existing suite of ETFs, the first two of which are expected to be listed on NYSE Arca beginning November 18.
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. Recently, Dimensional hired industry veteran, Nicole Hunter to help run their ETF initiative. Hunter spent 15 years at BlackRock developing distribution for their iShares ETFs. Our friends at RIABiz offer more background on Hunter and Dimensional’s strategy in beefing up their ETF business in this recent piece.
Many traditional fund companies are looking at making similar conversions as ETF popularity continues to grow among self-directed investors and financial advisors.
While the six mutual funds have delivered tax efficiency similar to what is available in the existing ETF market, their conversion will provide an additional tool to manage capital gains, supporting the funds’ goal to deliver higher after-tax returns by minimizing the tax impact. Following the conversion, the management fees of the six funds are expected to be reduced by 27%, on average, from current levels on an asset-weighted basis.
Dimensional intends to structure the conversion to be a tax-free event in which each investor’s mutual fund shares will convert to ETF shares.
The planned conversion includes the following mutual funds and new ETFs:
The Tax-Managed US Equity Portfolio (DTMIX), Tax-Managed US Small Cap Portfolio (DFTSX), Tax-Managed US Targeted Value Portfolio (DTMVX), TA US Core Equity 2 Portfolio (DFQTX), Tax-Managed International Value Portfolio (DTMIX), TA World ex-US Core Equity Portfolio (DFWVX)
Dimensional US Equity ETF, Dimensional US Small-Cap ETF, Dimensional US Targeted Value ETF, Dimensional US Core Equity 2 ETF, Dimensional International Value ETF, Dimensional World ex US Core Equity 2 ETF
The growing suite of Dimensional ETFs harnesses the power of Dimensional’s investment engine—a consistent investment philosophy combined with a value-added approach to implementation that the firm has been testing, refining, and advancing for nearly four decades.
“We’re pleased to broaden our ETF platform in a way that can help investors manage taxes even more efficiently,” Dimensional Co-CEO and Chief Investment Officer Gerard O’Reilly said. “We believe these strategies fill a unique space in the market, providing the benefits of passive investing, including low-cost diversified exposure to stocks, combined with the advantages of active investing, such as higher expected returns, flexible trading, robust daily portfolio management, and risk management.”
“We want our clients to have the tools they need to help investors meet their financial goals,” Co-CEO Dave Butler said. “Financial professionals use different vehicles to invest in the capital markets, including mutual funds, ETFs, separate accounts, and trusts. We’re committed to providing choices in how they access our investment expertise on behalf of their clients.”
In addition to the six new funds registered today, two of Dimensional’s previously announced Core Equity Market ETFs are expected to list on NYSE Arca on November 18:
- Dimensional US Core Equity Market ETF (NYSE Arca: DFAU)
- Dimensional International Core Equity Market ETF (NYSE Arca: DFAI)
Dimensional also plans to launch an Emerging Core Equity Market ETF in early December.
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.
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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.