Dimensional Emerging Markets Cr Eq 2 ETF’s Process Pillar rating is Average, but a strong management team still helps this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy’s management team earns an Above Average People Pillar rating. The strategy merits an Average Process Pillar rating.  The strategy's parent organization earns the firm a High Parent Pillar rating. People, Process and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

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The fund effectively diversifies risk, promotes low turnover, and systematically tilts toward securities with characteristics historically associated with market-beating performance.

Dimensional draws insights from empirical research to emphasize areas of the market with higher expected returns. Portfolio managers also add value through implementation that has been tested, repeated, and refined for more than three decades. This portfolio offers broad exposure to stocks listed in 26 emerging markets, including names with market caps as low as USD 50 million. The managers apply market-cap multipliers to overweight qualifying stocks with lower valuations (based on book/price), smaller market caps, and higher profitability (operating income before depreciation and amortization minus interest expense/book value) relative to other stocks in the same country. They do not exclude companies but underweight holdings with opposite characteristics relative to their market-cap weighting.

To better manage trading costs and reduce tracking error to large-cap emerging-markets equity benchmarks, the managers removed the fund’s single-country market-cap limit of 17.5% in October 2019. Since then, the portfolio’s China allocation has gradually increased. China A-shares have now also entered the portfolio. Managers continue to have full discretion to trade flexibly, allowing them to minimize transaction costs and take advantage of stock momentum.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a vehicle that follows a given strategy (as codified by Morningstar’s StrategyID data point) Morningstar maps the covered vehicle’s Process Pillar to any other uncovered vehicles that follow the same strategy (that is, share the same StrategyID). This ensures that the analyst’s view is leveraged whenever available and promotes consistency when assigning Process Pillar ratings to vehicles that follow the same strategy.

Average

Process

Dimensional's investment and implementation are overseen by an investment research committee and an investment committee. The former considers investment research and provides analysis and advises strategy enhancements and new strategies to the latter. It includes leading academics such as Eugene Fama and Kenneth French. The latter includes senior executives and portfolio managers. It is responsible for establishing investment processes and provides ultimate oversight for all portfolios.

The portfolio management and trading teams carry out the established policies and procedures for investment strategies and make daily decisions regarding the portfolios. This team approach enables investment professionals to broaden their abilities, promotes employee retention, and mitigates the impact of a professional’s departure or unavailability.

Jed Fogdall heads Dimensional’s portfolio management team and has served as a portfolio manager at the firm since 2004. Paul Foley is the lead manager for this emerging-markets strategy. Foley is based in London and heads the firm's EMEA portfolio management team. He joined Dimensional in 2003 and has served as a portfolio manager since 2012.

Note: The People Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a vehicle that follows a given strategy (as codified by Morningstar’s StrategyID data point), Morningstar maps the covered vehicle’s People Pillar ratings to any other uncovered vehicles that follow the same strategy (that is, share the same StrategyID). This ensures that the analyst’s view is leveraged whenever available and promotes consistency when assigning People Pillar ratings to vehicles that follow the same strategy.

Above Average

People

Dimensional’s mutual fund business has faced some tough challenges over the past few years. Despite large and persistent outflows, the firm has remained steadfast in its philosophy and responded in a way that benefits clients while improving its competitiveness. Dimensional maintains its High Parent Pillar rating.

More than $80 billion left Dimensional’s mutual funds between 2020 and 2022, but its response to the turmoil has been admirable. The firm started reducing fees in early 2020, and it continued the effort with three additional rounds of cuts.

Dimensional’s endeavor into exchange-traded funds was the biggest step it took to shore up its business. The firm converted seven tax-managed mutual funds to ETFs between mid-2021 and mid-2022. Along the way, it launched an additional two dozen that largely follow the same strategies underpinning the existing mutual funds. The firm also reinvested in its separate accounts platform by bolstering the technology used to manage these portfolios. The effort was aimed at improving operational efficiencies.

These measures appear to be paying off. The firm’s new ETFs have proved popular among its clients. In 2022, they brought in enough new money to nearly offset the outflows from its mutual funds. The separate account platform’s operational improvements, along with the new ETF lineup’s tax efficiency, should benefit clients and strengthen the firm’s prospects.

High

Parent

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And, plenty of ink has been spilled about how much money has gone into active ETFs in 2023, and from a pure top-line flows perspective, it's true. A significant chunk of the $289 billion that has entered U.S.-listed ETFs year to date went into active products — 22%, in fact.

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With $28 billion of net inflows in the first four months of 2023, according to VettaFi LOGICLY data, active ETF investments continue to gain traction with advisors and end clients. Two of the firms benefiting from the trend are Dimensional Funds and Capital Group.

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Investors should consider the opportunities in developing economies and the advantages of systematic, active emerging market exchange traded fund strategies.

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Dimensional has applied a systematic yet flexible approach in its emerging markets strategies for nearly three decades. The firm recently expanded its offering to include exchange traded funds (ETFs), including emerging markets strategies.

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Dimensional Fund Advisors has expanded its suite of ETFs with the launch of three new ETFs which offer broadly diversified exposure to core, value, and high profitability equities within emerging markets. The new funds, listed on the NYSE on April 27, are the Emerging Markets Core Equity 2 ETF (DFEM), the Emerging Markets Value ETF (DFEV), and [.

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News for Dimensional Emerging Markets Core Equity 2 ETF ETF (DFEM)