Dimensional Plans 4 ESG ETFs

April 14, 2022

Dimensional Fund Advisors announced plans last week to launch four ETFs offering sustainable takes on core asset classes. The new products are as follows:  

The four proposed funds echo existing strategies that the issuer already offers in mutual fund wrappers.  

The U.S. and international funds are slated to have the same expense ratio as their mutual fund counterparts, charging 0.18% and 0.24%, respectively.  

However, the emerging markets ETF will charge 0.41%, undercutting its mutual fund counterpart by 4 basis points, while the global fixed income ETF will be 1 basis point cheaper than its corresponding mutual fund.  

The Dimensional methodology for active equity management favors tilting the portfolio toward the smaller size, value and profitability factors.  

The Sustainability ETFs will implement this basic approach, but will layer ESG considerations over the portfolio, excluding or underweighting companies that are below average in terms of sustainability relative to their peer group or the overall selection universe.  

Dimensional takes into account many ESG-related concerns such as carbon emissions, involvement in the manufacture of personal and military weapons, the impact of environmental damage by a company, palm oil- and tobacco-related business activities, the operation of private prisons, use of child labor and other severe controversies. The prospectus notes that high carbon or greenhouse gas emissions are of particular concern, and companies that exhibit this characteristic will be excluded entirely from the portfolios.  

The global fixed income fund will use a similar sustainability methodology, but its focus will be on investment-grade debt maturing within 20 years of the date of settlement, with some exceptions. Rather than equity factors, the fund will target expected credit and term premiums, according to the fund document.  

The sustainability criteria used in the equity funds and broadly within the fixed income fund will not be applied to sovereign debt, whether it is domestic or foreign, the prospectus says, though it notes that U.S. Treasury debt and the debt of certain agencies are considered to be in line with the sustainability goals of the approach.  

 

Contact Heather Bell at [email protected] 

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