Dimensional Fund Advisors Files for Three Active ETFs
Dimensional Fund Advisors, a low-expense fund manager popular with registered investment advisers, has filed for its first actively-managed exchange traded funds, it said on Friday.
Expense ratios for the funds are not disclosed in the preliminary filing but pricing will be “competitive” with similar funds in the market, said Marlena Lee, DFA’s head of investment solutions.
“We always seek to be a cost leader,” she said. “We always want to be competitive on fees [with] value add net of fees.”
The U.S. and international ETFs will be run by portfolio managers Jed S. Fogdall, Joseph F. Hohn and Lukas J. Smart. The emerging markets ETF will be managed by Fogdall, Hohn and Allen Pu.
Dimensional, which is known for its “multifactor” investment strategies, said client demand, new regulation of ETFs and enabling technology for advisors stimulated its move into the $4 trillion ETF sector.
“This is a pretty big deal,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA. “Dimensional has a very strong following with a core group of advisors, whose only means of investing in these proven strategies has been in a mutual fund wrapper.”
The market’s heightened volatility in recent months creates opportunities for active managers, he added, though he noted that advisors should be aware that DFA’s new offerings will almost surely have higher internal costs than index-based funds.
Eric Nelson, whose Oklahoma-based registered investment advisory firm Servo Wealth Management manages about 98% of its $72 million of client assets in Dimensional mutual funds, said DFA’s ETFs are also likely to be attractive to smaller clients.
Transaction charges from discount brokers to customers of RIAs can still be expensive for young or neophyte investors, he said. “Now I can invest in some of the ETFs without transaction fees, and that allows me to work with more clients and smaller clients” willing to systematically make monthly investments, Nelson said.
Although the new ETFs will be the first managed under Dimensional’s name, the firm subadvises 15 passively-managed ETFs from John Hancock Investment Management. Three of those funds draw on investment philosophies similar to those of the new Dimensional funds.
In February, Dimensional reduced fees on 77 of its U.S. mutual funds as pricing wars accelerated.