Dimensional Fund Advisors Reaps $100B More in Assets With ETFs

Dimensional Fund Advisors’ foray into exchange-traded funds three years ago was more successful than the asset manager initially expected. 

The firm now has nearly 40 ETFs with about $100 billion in assets under management, and it is the eighth largest overall global issuer by assets, according to Dimensional. That’s significant growth for any asset manager, but especially for one whose total firm AUM is $600 billion. Dimensional says it had the fastest-growing lineup in industry history, as of the end of September. 

Twenty-one of Dimensional’s ETFs have more than $1 billion in assets under management, including nine that have had $1 billion in net new flows in 2023. All of Dimensional’s funds have had positive net flows this year. 

Mary Phillips, deputy head of portfolio management at Dimensional, says the asset manager heard growing clamor from its financial advisor clients who wanted the firm’s systematic-based mutual funds in an ETF wrapper. However, it took the Securities and Exchange Commission’s Rule 6c-11 to give Dimensional the confidence it could apply its quantitative approach to the ETF structure.  

“Now that we are able to offer ETFs, we've seen a huge interest that I think we didn't fully appreciate when we started out,” Phillips says. 

More Dimensional Clients 

She says Dimensional serves 36% more clients than it did in 2019, although the ETF launch isn’t responsible for all of that growth. 

“What we've found, at this point in both the industry and our evolution, is that clients who like our approach want to use it across their entire portfolio. They think of Dimensional as a full portfolio solution, not a single purpose solution as part of their portfolio,” she says. 

Elisabeth Kashner, director of Global Funds Research at FactSet, agrees that Dimensional’s rise is particularly strong. 

“Dimensional is really killing it,” she says. 

Like with many traditional asset managers, outflows from Dimensional's mutual funds also spurred the firm’s venture into ETFs. There is still some leakage from mutual funds, Kasher says, which diminishes some of the firm’s total flows on a net basis.  

Mutual Fund Conversions 

Early in Dimensional’s move into ETFs, it converted mutual funds into ETFs, including its biggest, the U.S. Core Equity 2 (DFAC), with $21 billion in assets under management and a 0.17% expense ratio. It’s also received the largest` inflows, at $4 billion in 2023. More recent launches are new ETFs, not conversions. 

Traditional asset managers have had to get used to ETF’s cheaper fee structure, and Dimensional is no different. What’s unique is the firm aligned its mutual fund costs with its ETFs. Phillips says the firm wanted to make sure its fees were consistent across its product offerings. Kashner says low fees help Dimensional stand out. 

“Dimensional … figured out that pricing in the ETF space has got to be radically different than pricing in the mutual fund space. Dimensional has really anchored themselves as the low-cost leader,” she says. 

Active Investing 

Aside from standing out for its low fees, its active investment approach is different from other stock-picking active managers as it implements the factor research that founder and Chairman David Booth studied at the University of Chicago. 

For the past few years, actively managed ETFs have gained market share while active mutual funds have shed assets. However, Kashner points out, it’s still tough for active managers to consistently outperform, no matter the wrapper. S&P Dow Jones Indices research, known as the SPIVA Scorecard, shows that over 15 years, only 7.8% of funds outperformed the S&P 500. 

“It's very, very difficult to keep that up quarter after quarter, year after year. The SPIVA results are remarkably consistent on that front,” she says.