Dimensional US Equity ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's sensible investment philosophy merits an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm a High Parent Pillar rating. People Pillar 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

Apple

Microsoft

Amazon

NVIDIA

Alphabet

Tesla

Berkshire Hathaway Inc. - Ordinary Shares - Class B

Exxon Mobil

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Dimensional US Equity ETF earns an Above Average Process Pillar rating. 

The largest contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 60%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The firm's five-year retention rate of 86% also contributes to the process. Lastly, the process is limited by being an actively managed strategy. Historical data, like Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.

 This strategy leans toward smaller, higher-growth companies than its average peer in the Large Blend Morningstar Category. Looking at additional factor exposure, the fund has held stocks with higher trading volumes compared to Morningstar Category Peers in the past few years. More-liquid assets contribute to more-flexible exit strategies without price changes and tend to be a ballast during market selloffs. For example, if the portfolio faces successive redemptions in a short period of time, it will be less likely to suffer from a significant loss. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy also has had an overweight bias to the volatility factor over these years, meaning it has owned companies that have a higher historical standard deviation of returns. Such exposure tends to pay off when markets are hot and to be costly when they are not. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. In addition, this strategy has exhibited a tendency to hold fewer stocks with high dividend or buyback yields over peers in recent years. This is demonstrated by the portfolio's low exposure to dividends or buybacks. While companies with high yields provide steady income payments, they may cut payouts if their earnings decline. In recent months, the strategy also had less Yield factor exposure than its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio has allocations in its top two sectors, technology and consumer cyclical, that are similar to the category. The sectors with low exposure compared to category peers are real estate and healthcare; however, the allocations are similar to the category. The strategy owns 2,425 securities and is diversified among those holdings. In its most recent portfolio, 27.8% of the portfolio's assets were concentrated in the top 10 fund holdings, compared to the category average's 50.3%. And finally, in terms of portfolio turnover, this portfolio turns over its holdings less quickly than peers, potentially leading to lower costs for investors and eliminating a drag on performance.

Above Average

Process

Dimensional US Equity ETF earns an Average People Pillar rating. Jed S. Fogdall, the longest-tenured manager on the strategy, provides strong guidance, bringing forward over 25 years of portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 3.2 stars, indicating that their risk-adjusted returns have been in line with the category average. Jed S. Fogdall is supported by an experienced team, being able to draw on three additional listed managers, who average over 25 years of portfolio management experience. As a team, they manage seven investment vehicles together, with solid long-term prospects. The strategies average a Silver asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha in aggregate. None of the portfolio managers here invest in this fund. This hurts the rating because manager investment would align their interests with the strategy's investors.

 Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

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

Dimensional US Equity ETF

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