When it comes to investing in the U.S. equity market, traditional market-cap-weighted index funds are the go-to choice for many investors. However, Dimensional Fund Advisors offers a compelling alternative with its trio of core U.S. equity ETFs, designed to deliver enhanced returns through factor-based strategies backed by decades of academic research. Here, they are explained further in the brief:
Team findesh/JUNE 11, 2024
- Dimensional US Core Equity 1 ETF (DCOR)
Leading the pack is the Dimensional US Core Equity 1 ETF (DCOR). Unlike traditional index funds that weight stocks based solely on market capitalization, DCOR employs a rules-based approach that overweights value stocks, smaller companies, and firms with higher profitability. These factors have been identified by academic research as drivers of long-term outperformance. Over the past five years, DCOR has outpaced the broad U.S. market, as represented by the Vanguard Total Stock Market ETF (VTI), returning an impressive 11.2% annually compared to VTI’s 10.6%. - Dimensional US Core Equity 2 ETF (DFAC) Complementing DCOR is the Dimensional US Core Equity 2 ETF (DFAC). Like its sibling, DFAC targets value, small-cap, and high-profitability stocks, but with a more pronounced tilt towards smaller companies and mid-caps. This positioning has amplified DFAC’s exposure to the potential outperformance of smaller stocks, resulting in a stellar 12.1% annualized return over the past five years, outpacing both DCOR and VTI.
- Dimensional US Core Equity Market ETF (DFAU) For investors seeking comprehensive representation of the U.S. equity market, Dimensional offers the US Core Equity Market ETF (DFAU). This fund aims to capture the entire U.S. stock market, from micro-caps to large-caps, using a proprietary strategy designed to improve diversification and minimize unnecessary trading costs. DFAU’s approach blends the benefits of market-cap weighting with Dimensional’s factor-based techniques, resulting in a 10.9% annualized return over the past five years, closely tracking the broad market while still outperforming VTI.
The Dimensional Advantage: Academic Research and Systematic Strategies
What sets these Dimensional ETFs apart is their reliance on academic research and systematic, rules-based strategies. Rather than attempting to outguess the market, Dimensional constructs its funds based on decades of empirical evidence on factors like value, size, and profitability. This disciplined approach has earned Dimensional a reputation for delivering efficient, cost-effective exposure to various equity risk premia.
While past performance is no guarantee of future results, the impressive track records of these Dimensional ETFs demonstrate the potential benefits of their unique factor-based approach. By combining broad market exposure with factor tilts, they aim to enhance long-term returns while keeping costs low and minimizing unnecessary trading activity.
Consult with a Financial Advisor for Tailored Investment Strategies
It’s essential to speak with a financial advisor to ensure your investments align with your goals and risk tolerance. For a smarter approach to U.S. equity investing, consider Dimensional’s ETF triad as a compelling alternative to traditional market-cap-weighted funds.