Six more ETFs from DFA (Dimensional Fund Advisors)

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vineviz
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Six more ETFs from DFA (Dimensional Fund Advisors)

Post by vineviz »

Dimensional Fund Advisors (DFA) seems to be quite serious about finally getting into the ETF business. They just announced six new ETFs (which are effectively conversions of soon-to-be-former tax-managed mutual funds) in addition to two others that are already slated to start trading tomorrow.

The new funds are:

Dimensional US Equity ETF
Dimensional US Small Cap ETF
Dimensional US Targeted Value ETF
Dimensional US Core Equity 2 ETF
Dimensional International Value ETF
Dimensional World ex US Core Equity 2 ETF

Expense ratios range from 8bps(!) to 30bps.

https://www.businesswire.com/news/home/ ... F-Offering
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by bzargarcia »

Interesting. Thanks for posting
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by Angst »

Yes, thank you for posting this. I see that the 6 new DFA ETF's will be funded in part from the outset with AUM from 6 existing Tax Managed (TM) DFA mutual funds that will be converted (non-taxable) into the new ETFs:

Code: Select all

Existing DFA Mutual Funds  ER bps        New DFA ETFs                          ER bps

TM US Equity Port              18   ->   Dimensional US Equity ETF                  8
TM US Small Cap Port           40   ->   Dimensional US Small Cap ETF              30
TM US Targeted Value Port      40   ->   Dimensional US Targeted Value ETF         30
TA US Core Equity 2 Port       20   ->   Dimensional US Core Equity 2 ETF          16
TM International Value Port    45   ->   Dimensional International Value ETF       30
TA World exUS Core Equity Port 30   ->   Dimensional World ex US Core Equity 2 ETF 25
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by stan1 »

Would they be licensing Vanguard's patent to do the mutual fund to ETF conversion I wonder?
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by vasaver »

Does this mean it is time to load up on Value? I wonder if the Avantis team jumped ship at the right time.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by stan1 »

vasaver wrote: Tue Nov 17, 2020 1:08 pm Does this mean it is time to load up on Value? I wonder if the Avantis team jumped ship at the right time.
Not according to Ted Aronson who is shutting down his value oriented firm after 37 years.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by vineviz »

stan1 wrote: Tue Nov 17, 2020 12:53 pm Would they be licensing Vanguard's patent to do the mutual fund to ETF conversion I wonder?
I don't think Vanguard has a patent on this. AFAIK, their patent is for an open-end fund which has an ETF as a share class. That won't be the case with the new DFA funds: they are opening new funds as ETFs then merging the open-end fund into the ETFs. As a result, there will still be only only share class (the ETF) so no conflict with Vanguard's patent.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by nedsaid »

vasaver wrote: Tue Nov 17, 2020 1:08 pm Does this mean it is time to load up on Value? I wonder if the Avantis team jumped ship at the right time.
Not sure. I don't see this as a "buy" signal for Value. What it means is that there is more competition in the factor space. Do it yourself investors no longer need Financial Advisors to access DFA or similar such products. I have been excited about Avantis myself but I have not purchased any of their ETFs yet. DFA should have entered the ETF market years ago, they took a feeble stab at it with a partnership with John Hancock.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by Massdriver »

nedsaid wrote: Tue Nov 17, 2020 1:35 pm
vasaver wrote: Tue Nov 17, 2020 1:08 pm Does this mean it is time to load up on Value? I wonder if the Avantis team jumped ship at the right time.
Not sure. I don't see this as a "buy" signal for Value. What it means is that there is more competition in the factor space. Do it yourself investors no longer need Financial Advisors to access DFA or similar such products. I have been excited about Avantis myself but I have not purchased any of their ETFs yet. DFA should have entered the ETF market years ago, they took a feeble stab at it with a partnership with John Hancock.
I agree. DFA just sees the writing on the wall that there is no demand for their walled off approach anymore when investors can access numerous factor ETFs for free.

What does bode well for value firms seems to be the headlines from Morningstar and Barrons recently touting value. There seems to be a running theme of investors rotating to value from growth as the recovery picks up steam with a vaccine.

So with DFA entering, I wonder what Avantis is thinking right now. I hope it doesn't get too crowded. AVDV is a great fund that I own and I would rather just stick with them rather than going DFA. I believe their methodologies are extremely similar.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by nedsaid »

Massdriver wrote: Tue Nov 17, 2020 1:54 pm
nedsaid wrote: Tue Nov 17, 2020 1:35 pm
vasaver wrote: Tue Nov 17, 2020 1:08 pm Does this mean it is time to load up on Value? I wonder if the Avantis team jumped ship at the right time.
Not sure. I don't see this as a "buy" signal for Value. What it means is that there is more competition in the factor space. Do it yourself investors no longer need Financial Advisors to access DFA or similar such products. I have been excited about Avantis myself but I have not purchased any of their ETFs yet. DFA should have entered the ETF market years ago, they took a feeble stab at it with a partnership with John Hancock.
I agree. DFA just sees the writing on the wall that there is no demand for their walled off approach anymore when investors can access numerous factor ETFs for free.

What does bode well for value firms seems to be the headlines from Morningstar and Barrons recently touting value. There seems to be a running theme of investors rotating to value from growth as the recovery picks up steam with a vaccine.

So with DFA entering, I wonder what Avantis is thinking right now. I hope it doesn't get too crowded. AVDV is a great fund that I own and I would rather just stick with them rather than going DFA. I believe their methodologies are extremely similar.
I saw an article about Private Equity and Corporate Raiders. The Coronavirus pandemic has driven the prices of a lot of companies way down and PE and the Raiders are licking their chops. So this buyout activity might be a catalyst for Value stocks.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by retiringwhen »

Interesting aside I learned from the news release.

I did not realize that two guys named Gerard O'Reilly worked in near corners of the Fund business.

Gerard C. O'Reilly is a Portfolio Manager in the Vanguard Equity Index Group and oversees something like $4T.

Gerard K. O'Reilly is Co-CEO of DFA who overall manages $500B.

I had to check as I wondered if Gerard "C" moved to DFA, since I track the Vanguard index funds much closer than DFA.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by caklim00 »

Massdriver wrote: Tue Nov 17, 2020 1:54 pm
nedsaid wrote: Tue Nov 17, 2020 1:35 pm
vasaver wrote: Tue Nov 17, 2020 1:08 pm Does this mean it is time to load up on Value? I wonder if the Avantis team jumped ship at the right time.
Not sure. I don't see this as a "buy" signal for Value. What it means is that there is more competition in the factor space. Do it yourself investors no longer need Financial Advisors to access DFA or similar such products. I have been excited about Avantis myself but I have not purchased any of their ETFs yet. DFA should have entered the ETF market years ago, they took a feeble stab at it with a partnership with John Hancock.
I agree. DFA just sees the writing on the wall that there is no demand for their walled off approach anymore when investors can access numerous factor ETFs for free.

What does bode well for value firms seems to be the headlines from Morningstar and Barrons recently touting value. There seems to be a running theme of investors rotating to value from growth as the recovery picks up steam with a vaccine.

So with DFA entering, I wonder what Avantis is thinking right now. I hope it doesn't get too crowded. AVDV is a great fund that I own and I would rather just stick with them rather than going DFA. I believe their methodologies are extremely similar.
I don't see International Small Cap Value so Avantis is the only game anyway. Would be helpful to have DFA as a tax loss partner though. I am using AVUV but I'm not sure US Targeted Value is worth the extra .15 ER over SLYV/VIOV since it doesn't have the loading of their US SCV fund.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by Jebediah »

These will be available to retail investors or still advisor/institutional only?
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by SlowMovingInvestor »

Jebediah wrote: Tue Nov 17, 2020 2:44 pm These will be available to retail investors or still advisor/institutional only?
I don't think you can restrict ETF purchases, so everyone.

There do look to be some nice alternatives to VG/Blackrock in this set.

ADDED: They say
'Dimensional ETFs are available through financial professionals and a variety of brokerage platforms'

I'm not sure what that means -- I didn't think there was any way to restrict purchase of an ETF to specific platforms/advisors, but maybe there is. Or maybe the language is just confusing -- they mean one can buy the ETFs through any brokerage.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by grabiner »

Angst wrote: Tue Nov 17, 2020 12:52 pm Yes, thank you for posting this. I see that the 6 new DFA ETF's will be funded in part from the outset with AUM from 6 existing Tax Managed (TM) DFA mutual funds that will be converted (non-taxable) into the new ETFs:

Code: Select all

Existing DFA Mutual Funds  ER bps        New DFA ETFs                          ER bps

TM US Equity Port              18   ->   Dimensional US Equity ETF                  8
TM US Small Cap Port           40   ->   Dimensional US Small Cap ETF              30
TM US Targeted Value Port      40   ->   Dimensional US Targeted Value ETF         30
TA US Core Equity 2 Port       20   ->   Dimensional US Core Equity 2 ETF          16
TM International Value Port    45   ->   Dimensional International Value ETF       30
TA World exUS Core Equity Port 30   ->   Dimensional World ex US Core Equity 2 ETF 25
The most interesting fund is probably Dimensional International Value ETF. 30 basis points is the same as iShares MSCI Factor Value ETF, which is the fund I currently use. Morningstar says that iShares has lower P/E and P/B ratios, and a better value factor loading, but DFA has a higher quality loading, which is often an issue with deep value.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by Random Musings »

DFA had the opportunity to be a first mover, or at least an early mover, with some of their products which were more unique back in the day. Now, they are just another ETF offering, the chance for generating buzz is far less as the product arena is more crowded today.

I still think the question is how much larger those funds can grow before they can't load the way they want and hence become less valuey/quality?

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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by stan1 »

Also an acknowledgement (maybe reluctantly) that a tax managed fund needs to have an ETF to wash capital gains distributions. Some active management to reduce dividend yield along with ETF creation/redemption process to wash away capital gains distributions forever (under current tax law). These DFA tax managed funds HAVE had cap gains distributions in many years.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by Leif »

Since Vanguard uses a different share class for their funds that have an ETF component, moving between the two is tax free. I wonder if DFA will need to distribute gains when they convert to the ETF?
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by vineviz »

Leif wrote: Tue Nov 17, 2020 10:09 pm Since Vanguard uses a different share class for their funds that have an ETF component, moving between the two is tax free. I wonder if DFA will need to distribute gains when they convert to the ETF?
It’s not done until it’s done, but it likely will be structured as a tax-free event.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by sperry8 »

When they move their Emerging Markets Value fund to an ETF I'll be a buyer. Otherwise, I'm generally fine with Vanguard Value ETFs.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by Greenman72 »

Jebediah wrote: Tue Nov 17, 2020 2:44 pm These will be available to retail investors or still advisor/institutional only?
IMHO - the reason DFA is so slow to the ETF game is because they don't want their funds available to the entire universe. By having only regular mutual funds, they can effectively control their distribution channel. Now, by creating ETF's, they have essentially bypassed the investment advisors of the world, who are their salesforce.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by Leif »

vineviz wrote: Wed Nov 18, 2020 5:03 am
Leif wrote: Tue Nov 17, 2020 10:09 pm Since Vanguard uses a different share class for their funds that have an ETF component, moving between the two is tax free. I wonder if DFA will need to distribute gains when they convert to the ETF?
It’s not done until it’s done, but it likely will be structured as a tax-free event.
It seems likely. It would be very disappointing to people in a tax managed account to be hit with big CGs.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by retiringwhen »

Leif wrote: Wed Nov 18, 2020 9:57 am
vineviz wrote: Wed Nov 18, 2020 5:03 am
Leif wrote: Tue Nov 17, 2020 10:09 pm Since Vanguard uses a different share class for their funds that have an ETF component, moving between the two is tax free. I wonder if DFA will need to distribute gains when they convert to the ETF?
It’s not done until it’s done, but it likely will be structured as a tax-free event.
It seems likely. It would be very disappointing to people in a tax managed account to be hit with big CGs.
From the Press Release in the OP (emphasis added)
https://www.businesswire.com/news/home/20201117005669/en/%C2%A0Dimensional-Fund-Advisors-Significantly-Expands-ETF-Offering wrote:
Dimensional intends to structure the conversion to be a tax-free event in which each investor’s mutual fund shares will convert to ETF shares.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by kolder »

Greenman72 wrote: Wed Nov 18, 2020 9:52 am
Jebediah wrote: Tue Nov 17, 2020 2:44 pm These will be available to retail investors or still advisor/institutional only?
IMHO - the reason DFA is so slow to the ETF game is because they don't want their funds available to the entire universe. By having only regular mutual funds, they can effectively control their distribution channel. Now, by creating ETF's, they have essentially bypassed the investment advisors of the world, who are their salesforce.
Dimensional has said that they are moving to ETFs because of a rule that changed in 2019 for ETFs, allowing them to make custom basket orders. They didn't move to ETFs in the past because you could only make pro-rata baskets in the creation/redemption process, which does not allow them to rebalance daily, which is something DFA mutual funds do.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by stan1 »

Leif wrote: Wed Nov 18, 2020 9:57 am
vineviz wrote: Wed Nov 18, 2020 5:03 am
Leif wrote: Tue Nov 17, 2020 10:09 pm Since Vanguard uses a different share class for their funds that have an ETF component, moving between the two is tax free. I wonder if DFA will need to distribute gains when they convert to the ETF?
It’s not done until it’s done, but it likely will be structured as a tax-free event.
It seems likely. It would be very disappointing to people in a tax managed account to be hit with big CGs.
I think the whole reason DFA is doing this is to get Tax Managed mutual funds into the more tax efficient ETF structure. I'd guess clients and advisors who use these "tax managed" funds are not happy about the capital gains distributions they throw off each year, and are already moving new assets to ETFs which do not have capital gains distributions. Active ETF construct lets them managed dividend yield and maximize QDI while using ETF structure to avoid capital gains distributions. I don't understand why Vanguard has not done the same for their remaining tax managed funds.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by Angst »

I found some additional news about DFA ETFs in an online article at etfdb.com here:
https://etfdb.com/news/2020/11/17/dimen ... dfau-dfai/

Two previously registered DFA ETF's will begin listing today, Nov 18th, w/ tickers DFAU and DFAI.
In online article, etfdb.com wrote:In addition to the six new funds registered today, two of Dimensional’s previously announced Core Equity Market ETFs are expected to list on NYSE Arca on November 18:
  • Dimensional US Core Equity Market ETF (NYSE Arca: DFAU)
  • Dimensional International Core Equity Market ETF (NYSE Arca: DFAI)
Dimensional also plans to launch an Emerging Core Equity Market ETF in early December.

Note, the EM "Core" equity ETF in the pipeline - I'd be more pleased to see EM Value there.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by Hallman »

stan1 wrote: Wed Nov 18, 2020 10:43 am
Leif wrote: Wed Nov 18, 2020 9:57 am
vineviz wrote: Wed Nov 18, 2020 5:03 am
Leif wrote: Tue Nov 17, 2020 10:09 pm Since Vanguard uses a different share class for their funds that have an ETF component, moving between the two is tax free. I wonder if DFA will need to distribute gains when they convert to the ETF?
It’s not done until it’s done, but it likely will be structured as a tax-free event.
It seems likely. It would be very disappointing to people in a tax managed account to be hit with big CGs.
I think the whole reason DFA is doing this is to get Tax Managed mutual funds into the more tax efficient ETF structure. I'd guess clients and advisors who use these "tax managed" funds are not happy about the capital gains distributions they throw off each year, and are already moving new assets to ETFs which do not have capital gains distributions. Active ETF construct lets them managed dividend yield and maximize QDI while using ETF structure to avoid capital gains distributions. I don't understand why Vanguard has not done the same for their remaining tax managed funds.
Has DFA said they will do this? Do other ETF providers such as Avantis do it?
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by stan1 »

Hallman wrote: Wed Nov 18, 2020 11:00 am
stan1 wrote: Wed Nov 18, 2020 10:43 am
Leif wrote: Wed Nov 18, 2020 9:57 am
vineviz wrote: Wed Nov 18, 2020 5:03 am
Leif wrote: Tue Nov 17, 2020 10:09 pm Since Vanguard uses a different share class for their funds that have an ETF component, moving between the two is tax free. I wonder if DFA will need to distribute gains when they convert to the ETF?
It’s not done until it’s done, but it likely will be structured as a tax-free event.
It seems likely. It would be very disappointing to people in a tax managed account to be hit with big CGs.
I think the whole reason DFA is doing this is to get Tax Managed mutual funds into the more tax efficient ETF structure. I'd guess clients and advisors who use these "tax managed" funds are not happy about the capital gains distributions they throw off each year, and are already moving new assets to ETFs which do not have capital gains distributions. Active ETF construct lets them managed dividend yield and maximize QDI while using ETF structure to avoid capital gains distributions. I don't understand why Vanguard has not done the same for their remaining tax managed funds.
Has DFA said they will do this? Do other ETF providers such as Avantis do it?
You are correct, I just looked at the DFA prospectus for several of their tax managed funds. Prospectus states that they are managed for capital gains distributions but does not mention dividends. They could choose to manage to get higher QDI if they wanted. Or maybe they do and don't state so in the prospectus.
The Advisor’s tax management strategies for the Tax-Managed U.S. Marketwide Value Series are designed to maximize the after tax value of a shareholder’s investment. Generally, the Advisor buys and sells securities for the Tax-Managed U.S. Marketwide Value Series with the goals of: (i) delaying and minimizing the realization of net capital gains (e.g., selling stocks with capital losses to offset gains, realized or anticipated); and (ii) maximizing the extent to which any realized net capital gains are long-term in nature (i.e., taxable at lower capital gains tax rates).
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by Hallman »

stan1 wrote: Wed Nov 18, 2020 11:48 am
Hallman wrote: Wed Nov 18, 2020 11:00 am
stan1 wrote: Wed Nov 18, 2020 10:43 am
Leif wrote: Wed Nov 18, 2020 9:57 am
vineviz wrote: Wed Nov 18, 2020 5:03 am
It’s not done until it’s done, but it likely will be structured as a tax-free event.
It seems likely. It would be very disappointing to people in a tax managed account to be hit with big CGs.
I think the whole reason DFA is doing this is to get Tax Managed mutual funds into the more tax efficient ETF structure. I'd guess clients and advisors who use these "tax managed" funds are not happy about the capital gains distributions they throw off each year, and are already moving new assets to ETFs which do not have capital gains distributions. Active ETF construct lets them managed dividend yield and maximize QDI while using ETF structure to avoid capital gains distributions. I don't understand why Vanguard has not done the same for their remaining tax managed funds.
Has DFA said they will do this? Do other ETF providers such as Avantis do it?
You are correct, I just looked at the DFA prospectus for several of their tax managed funds. Prospectus states that they are managed for capital gains distributions but does not mention dividends. They could choose to manage to get higher QDI if they wanted. Or maybe they do and don't state so in the prospectus.
The Advisor’s tax management strategies for the Tax-Managed U.S. Marketwide Value Series are designed to maximize the after tax value of a shareholder’s investment. Generally, the Advisor buys and sells securities for the Tax-Managed U.S. Marketwide Value Series with the goals of: (i) delaying and minimizing the realization of net capital gains (e.g., selling stocks with capital losses to offset gains, realized or anticipated); and (ii) maximizing the extent to which any realized net capital gains are long-term in nature (i.e., taxable at lower capital gains tax rates).
Quote bellow is from the prospectus for tax managed strategies. I don't doubt that they try to reduce dividend income now that the funds are tax managed, and hope they will continue to do so after the funds are converted to ETFs, but I'm not so sure they will. The ETFs that are already launched have no mention of it in their prospectus.

"TAX MANAGEMENT STRATEGIES—TAX-MANAGED U.S. MARKETWIDE VALUE PORTFOLIO, TAX-MANAGED U.S.
TARGETED VALUE PORTFOLIO, TAX-MANAGED U.S. EQUITY PORTFOLIO, TAX-MANAGED U.S. SMALL CAP
PORTFOLIO AND TAX-MANAGED DFA INTERNATIONAL VALUE PORTFOLIO

Tax-Managed U.S. Marketwide Value Portfolio, Tax-Managed U.S. Targeted Value Portfolio, Tax-Managed U.S.
Equity Portfolio, Tax-Managed U.S. Small Cap Portfolio and Tax-Managed DFA International Value Portfolio each
seek to maximize the after tax value of an investment by managing its portfolio in a manner that will defer the
realization of net capital gains where possible and may attempt to reduce dividend income."
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by stan1 »

Hallman wrote: Wed Nov 18, 2020 11:58 am
stan1 wrote: Wed Nov 18, 2020 11:48 am
Hallman wrote: Wed Nov 18, 2020 11:00 am
stan1 wrote: Wed Nov 18, 2020 10:43 am
Leif wrote: Wed Nov 18, 2020 9:57 am
It seems likely. It would be very disappointing to people in a tax managed account to be hit with big CGs.
I think the whole reason DFA is doing this is to get Tax Managed mutual funds into the more tax efficient ETF structure. I'd guess clients and advisors who use these "tax managed" funds are not happy about the capital gains distributions they throw off each year, and are already moving new assets to ETFs which do not have capital gains distributions. Active ETF construct lets them managed dividend yield and maximize QDI while using ETF structure to avoid capital gains distributions. I don't understand why Vanguard has not done the same for their remaining tax managed funds.
Has DFA said they will do this? Do other ETF providers such as Avantis do it?
You are correct, I just looked at the DFA prospectus for several of their tax managed funds. Prospectus states that they are managed for capital gains distributions but does not mention dividends. They could choose to manage to get higher QDI if they wanted. Or maybe they do and don't state so in the prospectus.
The Advisor’s tax management strategies for the Tax-Managed U.S. Marketwide Value Series are designed to maximize the after tax value of a shareholder’s investment. Generally, the Advisor buys and sells securities for the Tax-Managed U.S. Marketwide Value Series with the goals of: (i) delaying and minimizing the realization of net capital gains (e.g., selling stocks with capital losses to offset gains, realized or anticipated); and (ii) maximizing the extent to which any realized net capital gains are long-term in nature (i.e., taxable at lower capital gains tax rates).
Quote bellow is from the prospectus for tax managed strategies. I don't doubt that they try to reduce dividend income now that the funds are tax managed, and hope they will continue to do so after the funds are converted to ETFs, but I'm not so sure they will. The ETFs that are already launched have no mention of it in their prospectus.

"TAX MANAGEMENT STRATEGIES—TAX-MANAGED U.S. MARKETWIDE VALUE PORTFOLIO, TAX-MANAGED U.S.
TARGETED VALUE PORTFOLIO, TAX-MANAGED U.S. EQUITY PORTFOLIO, TAX-MANAGED U.S. SMALL CAP
PORTFOLIO AND TAX-MANAGED DFA INTERNATIONAL VALUE PORTFOLIO

Tax-Managed U.S. Marketwide Value Portfolio, Tax-Managed U.S. Targeted Value Portfolio, Tax-Managed U.S.
Equity Portfolio, Tax-Managed U.S. Small Cap Portfolio and Tax-Managed DFA International Value Portfolio each
seek to maximize the after tax value of an investment by managing its portfolio in a manner that will defer the
realization of net capital gains where possible and may attempt to reduce dividend income."
Good find, even their own documents are inconsistent!
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by Hallman »

stan1 wrote: Wed Nov 18, 2020 12:06 pm
Hallman wrote: Wed Nov 18, 2020 11:58 am
stan1 wrote: Wed Nov 18, 2020 11:48 am
Hallman wrote: Wed Nov 18, 2020 11:00 am
stan1 wrote: Wed Nov 18, 2020 10:43 am

I think the whole reason DFA is doing this is to get Tax Managed mutual funds into the more tax efficient ETF structure. I'd guess clients and advisors who use these "tax managed" funds are not happy about the capital gains distributions they throw off each year, and are already moving new assets to ETFs which do not have capital gains distributions. Active ETF construct lets them managed dividend yield and maximize QDI while using ETF structure to avoid capital gains distributions. I don't understand why Vanguard has not done the same for their remaining tax managed funds.
Has DFA said they will do this? Do other ETF providers such as Avantis do it?
You are correct, I just looked at the DFA prospectus for several of their tax managed funds. Prospectus states that they are managed for capital gains distributions but does not mention dividends. They could choose to manage to get higher QDI if they wanted. Or maybe they do and don't state so in the prospectus.
The Advisor’s tax management strategies for the Tax-Managed U.S. Marketwide Value Series are designed to maximize the after tax value of a shareholder’s investment. Generally, the Advisor buys and sells securities for the Tax-Managed U.S. Marketwide Value Series with the goals of: (i) delaying and minimizing the realization of net capital gains (e.g., selling stocks with capital losses to offset gains, realized or anticipated); and (ii) maximizing the extent to which any realized net capital gains are long-term in nature (i.e., taxable at lower capital gains tax rates).
Quote bellow is from the prospectus for tax managed strategies. I don't doubt that they try to reduce dividend income now that the funds are tax managed, and hope they will continue to do so after the funds are converted to ETFs, but I'm not so sure they will. The ETFs that are already launched have no mention of it in their prospectus.

"TAX MANAGEMENT STRATEGIES—TAX-MANAGED U.S. MARKETWIDE VALUE PORTFOLIO, TAX-MANAGED U.S.
TARGETED VALUE PORTFOLIO, TAX-MANAGED U.S. EQUITY PORTFOLIO, TAX-MANAGED U.S. SMALL CAP
PORTFOLIO AND TAX-MANAGED DFA INTERNATIONAL VALUE PORTFOLIO

Tax-Managed U.S. Marketwide Value Portfolio, Tax-Managed U.S. Targeted Value Portfolio, Tax-Managed U.S.
Equity Portfolio, Tax-Managed U.S. Small Cap Portfolio and Tax-Managed DFA International Value Portfolio each
seek to maximize the after tax value of an investment by managing its portfolio in a manner that will defer the
realization of net capital gains where possible and may attempt to reduce dividend income."
Good find, even their own documents are inconsistent!
From @servowealth on twitter:

"There's 2 ways they limit dividends: exclusions of sectors (i.e. REITs) w/ordinary divs or countries that don't have qualified dividends. T-M funds could also underweight high dividend stocks but haven't had to do that for years (that "lever" was turned off).

ETFs should be same"
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by nisiprius »

DFA and factor enthusiasts have oftened mentioned DFA funds in the forum--often comparing Vanguard factor funds unfavorably to their DFA counterparts, as in Larry Swedroe's article, Small Value Funds Not Equal.

In all that time, I can't remember any of DFA's tax-managed funds even being mentioned. By far, the "most-wanted" DFA funds have been DFA US Micro Cap Portfolio, DFSCX, and DFA US Small Cap Value Portfolio, DFSVX.

DFA is a reasonably large fund family, and just being "a DFA fund" doesn't make it interesting. For example, consider the DFA US Large Company Portfolio, DFUSX (blue) compared here to the Vanguard 500 Index Fund VFIAX (orange). DFUSX is not interesting.*

Source

Image

So I have to ask: are the DFA funds that have ETF counterparts the DFA funds that people actually want?

* "The U.S. Large Company Portfolio seeks, as its investment objective, to approximate the total investment return of the S&P 500® Index."--DFA
Last edited by nisiprius on Tue Nov 24, 2020 8:55 pm, edited 1 time in total.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by happenstance »

nisiprius wrote: Thu Nov 19, 2020 12:54 pm So I have to ask: are the DFA funds that have [ETF] counterparts the DFA funds that people actually want?
This is a good question. My take on their new offerings:

Dimensional US Equity ETF - Not interesting. This is just a US-TSM fund that costs 5bp more than VTI.
Dimensional US Small Cap ETF - Not very interesting. This might be a TLH pair for (SLYV/IJS/VIOV)/AVUV/FNDA, but it actually loads slightly less on size and value than some of those offerings. I think there are already numerous good US-SCV options though, and this fund’s ER is double some of those I listed.
Dimensional US Targeted Value ETF - Not very interesting. Deeper value but less small than the above US Small Cap. Same comment really, especially about the ER.
Dimensional US Core Equity 2 ETF - Not interesting. A broad U.S. fund with light loadings on small and value. It’s 2bp more expensive than VFVA, which has higher loadings on size and value. I prefer to construct my factor portfolio with a cheap US-TSM fund and then add a US-SCV fund, rather than having a more expensive core holding with light factor loadings.
Dimensional International Value ETF - Potentially interesting fund for international developed value, but with no loading on size. There are fewer ETF comparisons for this, such as PXF/FNDF that are larger and load less on value, or IVLU which also loads less on value. As with US, though, I prefer to combine a cheap INTL-TSM with an INTL-SCV fund.
Dimensional World ex US Core Equity 2 ETF - Potentially interesting. This fund confuses me a little because if you run the factor regression back to inception, it has close to no factor load, making it an expensive and un-interesting INTL-TSM fund. But in recent years (e.g. since 2015) it has shown moderate loading on size and value, which could make it an interesting holding. It could be combined with something like FNDC/PDN/VSS to get a deeper size/value tilt. But I construct my international holdings as INTL-DEV-TSM + INTL-DEV-SCV + INTL-EM-V, so this fund wouldn’t fit into my AA.

So I don’t envision using any of these funds myself. I’m most interested in DFA’s impending Emerging Markets Core ETF, but we’ll have to wait a bit to see if it provides any meaningful factor exposure. Avantis’ funds are closer to what I want than these offerings from DFA.

My wishlist for DFA ETFs would be US Microcap (DFSCX), Intl Small Value (DISVX), and either Emerging Markets (DFEMX) or Emerging Markets Value (DFEVX).
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by cheapskate »

The links in this thread talk about a tax free conversion from Mutual Fund to ETF for these DFA funds. I own at least one or 2 of these funds (dating back a long time). Does anyone know how this conversion will work ? Will my Mutual Fund share automagically convert to the ETF or do I have to do something to trigger the conversion.

I am with a very low fee, low touch advisor with who I rarely speak/email with, so "what does your advisor say, talk to your advisor" responses won't be too helpful :)
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by vineviz »

cheapskate wrote: Tue Nov 24, 2020 3:37 pm The links in this thread talk about a tax free conversion from Mutual Fund to ETF for these DFA funds. I own at least one or 2 of these funds (dating back a long time). Does anyone know how this conversion will work ? Will my Mutual Fund share automagically convert to the ETF or do I have to do something to trigger the conversion.

I am with a very low fee, low touch advisor with who I rarely speak/email with, so "what does your advisor say, talk to your advisor" responses won't be too helpful :)
One day in 2021 you will wake up and find that you own the ETF instead the open-end fund. You don’t need to do anything if you’re okay with that.

There probably will be no tax consequences, but check the DFA website every once and a while to make sure nothing has changed.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by Oregano »

While it's reasonable to think that DFA was forced by market demand to move into ETFs, they appear to have a legitimate argument as to why they waited until now.

From https://www.barrons.com/articles/dfas-p ... 1601679712
"Yet because of the way ETFs have been historically designed, such customized trading was difficult to do. Trades had to be executed in standardized baskets representing a fund’s entire portfolio. Intraday trading of individual stocks that were attractively priced in such predetermined stock baskets wasn’t possible.

That changed with the Securities and Exchange Commission’s adoption of Rule 6c-11 last September. According to the SEC: “An ETF relying on rule 6c-11 will be permitted to use baskets that do not reflect a pro-rata representation of the fund’s portfolio or that differ from the initial basket used in transactions on the same business day (‘custom baskets’).”


This rule change allows DFA to manage ETFs in a similar manner as they always have with their open-end funds. They want to have flexibility to buy or sell whatever securities make the most sense for their strategies on a given day, not a fixed set of holdings and weightings. I would guess DFA lobbied the SEC hard to get this change.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by abuss368 »

I wonder sometimes what Vanguard and all fund houses will look like in the years ahead. I can’t help but think traditional mutual funds may one be a thing of the past and replaced by ETFs.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by abuss368 »

Vanguard PAS uses Vanguard ETFs for clients. Interesting.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by abuss368 »

stan1 wrote: Tue Nov 17, 2020 12:53 pm Would they be licensing Vanguard's patent to do the mutual fund to ETF conversion I wonder?
Vanguard holds a patent for this process? Interesting.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by alex_686 »

abuss368 wrote: Fri Nov 27, 2020 3:42 pm
stan1 wrote: Tue Nov 17, 2020 12:53 pm Would they be licensing Vanguard's patent to do the mutual fund to ETF conversion I wonder?
Vanguard holds a patent for this process? Interesting.
They do not. They hold a patent for holding mutual fund and ETFs classes within the same fund.

DFA is doing something different. Their ETF fund (acquiring fund A) is doing a corporate merger with a DFA mutual fund (target fund B). I have seen this before with mutual funds. I can't think of anything terrible unique about this. It would totally muck up the "mutual fund only" accounts since you can't force people to a brokerage account. But maybe DFA does not have any of those accounts.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by abuss368 »

alex_686 wrote: Fri Nov 27, 2020 3:49 pm
abuss368 wrote: Fri Nov 27, 2020 3:42 pm
stan1 wrote: Tue Nov 17, 2020 12:53 pm Would they be licensing Vanguard's patent to do the mutual fund to ETF conversion I wonder?
Vanguard holds a patent for this process? Interesting.
They do not. They hold a patent for holding mutual fund and ETFs classes within the same fund.

DFA is doing something different. Their ETF fund (acquiring fund A) is doing a corporate merger with a DFA mutual fund (target fund B). I have seen this before with mutual funds. I can't think of anything terrible unique about this. It would totally muck up the "mutual fund only" accounts since you can't force people to a brokerage account. But maybe DFA does not have any of those accounts.
Interesting and appreciate the explanation. When I converted at Vanguard to a brokerage account and then ETFs, they told me multiple times by 2021 or 2022 they are shifting client to the brokerage platform. Expected them to remove functionality or other features.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by alex_686 »

abuss368 wrote: Fri Nov 27, 2020 3:51 pm Interesting and appreciate the explanation. When I converted at Vanguard to a brokerage account and then ETFs, they told me multiple times by 2021 or 2022 they are shifting client to the brokerage platform. Expected them to remove functionality or other features.
They can't force you into a brokerage account. That requires you to sign new documents.

They can however use a stick, and as you are suggesting they are going to start doing that more vigorously. Having worked in operations I will tell you that ETFs are the future. The cost structure is just so much lower than mutual funds. I have used the example of a manual transmission many times before. I love manual transmissions but they are going away due to costs.

The other option Vanguard has is to liquidate your account and send you a check. That would be their nuclear option.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by palanzo »

alex_686 wrote: Fri Nov 27, 2020 4:10 pm
abuss368 wrote: Fri Nov 27, 2020 3:51 pm Interesting and appreciate the explanation. When I converted at Vanguard to a brokerage account and then ETFs, they told me multiple times by 2021 or 2022 they are shifting client to the brokerage platform. Expected them to remove functionality or other features.
They can't force you into a brokerage account. That requires you to sign new documents.

They can however use a stick, and as you are suggesting they are going to start doing that more vigorously. Having worked in operations I will tell you that ETFs are the future. The cost structure is just so much lower than mutual funds. I have used the example of a manual transmission many times before. I love manual transmissions but they are going away due to costs.

The other option Vanguard has is to liquidate your account and send you a check. That would be their nuclear option.
If they did that in taxable and that resulted in large taxes on capital gains there would be many lawsuits. Imagine the PR nightmare for Vanguard.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by abuss368 »

alex_686 wrote: Fri Nov 27, 2020 4:10 pm
abuss368 wrote: Fri Nov 27, 2020 3:51 pm Interesting and appreciate the explanation. When I converted at Vanguard to a brokerage account and then ETFs, they told me multiple times by 2021 or 2022 they are shifting client to the brokerage platform. Expected them to remove functionality or other features.
They can't force you into a brokerage account. That requires you to sign new documents.

They can however use a stick, and as you are suggesting they are going to start doing that more vigorously. Having worked in operations I will tell you that ETFs are the future. The cost structure is just so much lower than mutual funds. I have used the example of a manual transmission many times before. I love manual transmissions but they are going away due to costs.

The other option Vanguard has is to liquidate your account and send you a check. That would be their nuclear option.
So one way or another they will get everyone off of the mutual fund platform correct?

I have thought about the future and I don’t see how traditional mutual funds survive over the long term compared to ETFs. That is interesting.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by alex_686 »

palanzo wrote: Fri Nov 27, 2020 4:19 pm If they did that in taxable and that resulted in large taxes on capital gains there would be many lawsuits. Imagine the PR nightmare for Vanguard.
One time short term pain of a PR scandal verse the ongoing cost of maintaining a secondary system. At some point somebody at Vanguard will have decided that they have hit the crossover point.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by palanzo »

alex_686 wrote: Fri Nov 27, 2020 4:25 pm
palanzo wrote: Fri Nov 27, 2020 4:19 pm If they did that in taxable and that resulted in large taxes on capital gains there would be many lawsuits. Imagine the PR nightmare for Vanguard.
One time short term pain of a PR scandal verse the ongoing cost of maintaining a secondary system. At some point somebody at Vanguard will have decided that they have hit the crossover point.
Really? My guess is that there are billions of dollars in capital gains in the mutual funds.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by alex_686 »

abuss368 wrote: Fri Nov 27, 2020 4:21 pm So one way or another they will get everyone off of the mutual fund platform correct?

I have thought about the future and I don’t see how traditional mutual funds survive over the long term compared to ETFs. That is interesting.
Closed end funds used to be the norm before open ended mutual funds, yet closed end funds are still around. And manual transmissions. In my opinion they will go away. I suspect that Vanguard will be one of the last because of a large legacy asset base. I suspect Vanguard will be struggling this for years. They wanting to run ahead of their client base.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by abuss368 »

alex_686 wrote: Fri Nov 27, 2020 4:34 pm
abuss368 wrote: Fri Nov 27, 2020 4:21 pm So one way or another they will get everyone off of the mutual fund platform correct?

I have thought about the future and I don’t see how traditional mutual funds survive over the long term compared to ETFs. That is interesting.
Closed end funds used to be the norm before open ended mutual funds, yet closed end funds are still around. And manual transmissions. In my opinion they will go away. I suspect that Vanguard will be one of the last because of a large legacy asset base. I suspect Vanguard will be struggling this for years. They wanting to run ahead of their client base.
That makes a lot of sense and is quite possible. Funny the analogy to manual transmissions. My wife and I learned that way and used to have a car. We were just talking how you barely see that type of car anymore.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by 000 »

I think plain old mutual funds will be around for a long time to come. There are simply too many people who invest automatically with a dollar-based amount. For example, 401(k) contributions.

UNLESS they can make ETFs work exactly like POMFs.
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Re: Six more ETFs from DFA (Dimensional Fund Advisors)

Post by UpperNwGuy »

alex_686 wrote: Fri Nov 27, 2020 4:34 pm
abuss368 wrote: Fri Nov 27, 2020 4:21 pm So one way or another they will get everyone off of the mutual fund platform correct?

I have thought about the future and I don’t see how traditional mutual funds survive over the long term compared to ETFs. That is interesting.
Closed end funds used to be the norm before open ended mutual funds, yet closed end funds are still around. And manual transmissions. In my opinion they will go away. I suspect that Vanguard will be one of the last because of a large legacy asset base. I suspect Vanguard will be struggling this for years. They wanting to run ahead of their client base.
I think Fidelity, not Vanguard, will be the last to use mutual funds. About half of Vanguard's mutual funds already have ETF share classes, allowing a tax-free conversion. None of Fidelity's mutual funds have ETF share classes.
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