US fund management firm Dimensional Fund Advisors recently announced that it had gone past the USD1 trillion milestone in assets under management.
Part of those assets are the over USD265 billion in assets in ETFs, a product they added to their roster just over five years ago.
Wes Crill, Senior Client Solutions Director & VP at Dimensional, explains that the firm had been managing ETFs for a decade as a sub-adviser but the ETF rule in 2019 prompted it to launch its own products.
“The impetus to launch ETFs was the same as we have for mutual funds in that we have always looked to see what the needs of our clients are,” he says. “We try to figure out what is a long-term need that our client will have that will stand the test of time.”
For Crill, the test of time is important as he sees a high level of attrition in the financial services industry: “But 100 per cent of the funds available 20 years ago are still with us,” he says.
The firm describes itself as an active manager. “We would define active as non-index,” Crill says. “There are different flavours of active but in our mind active can also mean you have flexibility by being choosier about what goes into your portfolio, rather than outsourcing to an index provider. If you have a level of flexibility, you can make the decisions on a day-to-day basis.”
Of note are Dimensional’s Market Series ETFs, equity funds that take lighter tilts towards stocks with higher expected returns. The firm explains that these funds can have 50 to100 bps of tracking error rather than 2 to 4 per cent and are designed to replace index funds. The series has some USD40 billion in assets and span geographical regions giving investors market like exposure.
Crill uses the analogy of making a cup of coffee, that the water is the most important part. “We can exclude stocks with lower expected returns or high tax costs,” he says.
“The Market Series has been popular on the institutional side of the business. It’s a better way for institutions to gain broad market exposure at a cost-effective fee level.”
Dimensional has famously championed the cause of establishing ETFs as a share class and is now, with that regulatory change achieved, poised to launch its own.
The firm expects to launch a micro-cap portfolio ETF in the coming weeks as a share class of an existing mutual fund.
“Client demand drives our future listings, but we are thoughtfully reviewing our lineup for the best fits to add a share class and better meet this demand,” Crill says. “We are going to put this in play in a manner that will stand the test of time. It’s an exciting time for investors and the ETF landscape.”
