Dimensional Fund Advisors tries to staunch outflows while still preserving its mystique by getting 'real,' again, about 'vehicles' and 'asset classes' with a new ETF
The $540-billion AUM Austin, Texas factor-fund factory dropped $30 billion or so in AUM since August -- enough to make any manager launch a second real estate ETF in 2022
5 min read- DFA launched a global real estate ETF (DFGR) amid shrinking assets under management.
- Addresses advisor demand for ETF access and non-correlated, inflation-hedging assets.
- ETF structure avoids capital gains, enhancing real estate investment appeal.
- DFA faces competition from firms like Avantis, impacting asset flows.
- DFA broadens access, moving beyond advisor-only mutual funds to ETFs.
Dimensional Fund Advisors is getting real about the reality of ETF disruption and the need to give RIAs better access to real estate.
The Austin, Texas, factor-funds manufacturer added a real estate ETF, its second this year, as it belatedly kills two birds by building an ETF line-up and increasing access to non-correlated assets that also work as an inflation hedge.
DFA launched the Global Real Estate ETF (DFGR), Dec. 6 -- the same day it unveiled a new Large Cap Value ETF (DFLV).
Alex Potts, president of Buckingham Strategic Partners, a DFA-intensive TAMP, says that DFA's move both plays to its strengths and addresses areas to improve on in choice and tax exposure.
“DFA having an REIT in an ETF form rounds out DFA’s offer of being able to build a full portfolio with ETFs,” he says.
“Also, avoiding capital gains in the ETF makes it more palatable to hold real estate. And, their Global Fund is one of a few that I know of in the marketplace, and they don’t have to index.”
DFA has $540 billion of assets under management today. But the amount has been consistently shrinking of late. It managed $575 billion in August, a 6.1% drop, compared to a roughly 3.1%* drop in the markets. See: Dimensional Fund Advisors struggles to chart course. DFA finished 2018 at about $575 billion of total AUM.
DFA offers 30 ETFs with a combined $70 billion of AUM, or 13% of its total. See: Dimensional Fund Advisors finally launches ETFs, but as a 'defensive' measure as outflows mount, Morningstar says It has 109 mutual funds and othe non-ETFs.
Shifting tides
How DFA is putting its John Hancock on the ETFs category
It launched its first REIT-focused ETF, US Real Estate (DFAR), Feb. 23. Today, DFAR already manages $377 million.
"These new funds allow financial professionals to deliver an increasingly comprehensive Dimensional investment experience across vehicles and asset classes,” says DFA co-CEO Gerard O'Reilly, in a statement.
The company’s “mystique” traces back to its founders, who studied at the University of Chicago under Eugene Fama and Kenneth French. DFA's investment strategy is based on the application of their “efficient market hypothesis.”
But in 2020, the company announced it was abandoning its strictly advisor-access only mutual fund business model by offering openly-accessed exchange-traded funds.
At the time, DFA said financial professionals had been requesting that the firm transfer its strategies into the ETF wrapper “for a couple of years.”
Enhanced offerings
But in 2019, American Century, the Kansas City asset management firm, hired former Dimensional CEO Eduardo Repetto, and launched a DFA-knockoff, Avantis Investors – a direct challenger.
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Avantis – using a very DFA approach -- has grown its assets under management (AUM) by 38%, or $5 billion, since August, taking its overall AUM to $18 billion.
RIA assets continue to gravitate to ETFs over mutual funds.
DFA Co-CEO Dave Butler promises in the release that the firm will continue to augment and “enhance” its offerings.
“Dimensional remains committed to continuously enhancing our offerings and bringing new mutual funds, ETFs, and SMAs to market that add value for clients,” he stated.
Dimensional Fund Advisors finally launches ETFs, but as a 'defensive' measure as outflows mount, Morningstar says
Shrinking assets
The firm balked at ETFs longer than major competitors, like Vanguard Group, because mutual funds have qualities that ETFs can't replicate.. See: Dimensional Fund Advisors rocks the mutual fund industry by undertaking mass conversion of its mutual funds to ETFs
DFA mutual funds can be restricted to RIAs dedicated to low-churn and high-engagement across asset classes, hence reducing fund operating expenses and improving returns.
The mutual fund wrapper also obscures the DFA secret factor recipes better than more transparent ETFs.
DFA ETFs are available to all manner of investors because they trade on retail exchanges.
Shoring up weaknesses
DFGR invests in global REITs, mostly weighing investments based on market capitalization, but it can more heavily weight allocations based upon a REIT's size, value, profitability, liquidity and momentum factors, according to the linked release.
Yet at 22 basis points, DFA's new fund doesn't come cheap compared to similar funds already on the market.
Expense ratios roughly range between 12-basis-points for Vanguard's vanilla REIT ETF (VNQ), and 17-basis-points for Avantis ETF AVRE.
Of course, the ETF cuts don't include the fees of the underlying REIT's, which tend to average 50-basis-points.
DFA makes clear that investing in real estate is not out of character, or its depth."
“Dimensional has been investing in … real estate securities for three decades," O'Reilly says of his 41-year-old firm.
* The 3.1% figure for market decline uses the S&P 500 as a benchmark, and tracks the period between Aug. 9 and Dec. 14.
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