DFA International Small Cap Value Portfolio follows a well-designed strategy that pursues small stocks trading at lower valuations. Dimensional made several cuts to its expense ratio over the past few years, which should provide this strategy with a durable advantage over the long run.

Dimensional’s portfolio managers target stocks listed in foreign developed markets that land in the smallest 12.5% of each country’s market cap. They can include stocks with market caps as low as $50 million, which is uncommon among its foreign small/mid-value Morningstar Category peers. Potential holdings are pared down further to the cheapest 35% based on price/book ratio. Next, the managers avoid holding stocks with poor profitability, higher relative valuations, and faster asset growth. These three tilts help the fund avoid stocks with poor expected performance, but the advantage should be mild.

The result is a portfolio that goes after small-cap stocks trading at lower valuations in a more assertive manner than many of its peers, as it has one of the lowest price/book ratios in the category. Venturing deep into small-value territory exposes the portfolio to stocks that can be expensive to trade. To keep transaction costs down, traders on this fund have the freedom to choose which stocks they trade from an approved pool of eligible names.

Deeper tilts toward smaller and cheaper stocks have helped the fund’s long-term performance. Dimensional launched the mutual fund in December 1994, and it beat the MSCI ACWI ex USA SMID Value Index by 77 basis points annualized through January 2024, with higher volatility. While these factor tilts increase risk, they don’t always provide a big advantage. As an example, the fund’s edge over the index was only 8 basis points over the trailing 10 years through January 2021. Dimensional charges 0.44% per year for the mutual fund and 0.42% for the exchange-traded fund, making them cheaper than many of their peers in the foreign small/mid-value category.

Analyst Rating

A potent foreign small-value fund.

Senior Analyst

Daniel Sotiroff

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This strategy has a lot to like. Its rules-based approach, solid diversification, and cost-effective implementation earn an Above Average Process Pillar rating.

Above Average

Process

Dimensional’s multimanager team structure and global network of trading desks support an Above Average People Pillar rating. The named managers on this fund collaborate with the firm’s trading desks around the world to execute this strategy in the most cost-effective way possible. Spreading management responsibilities across several managers reduces the impact of personnel turnover when it does occur.

Jed Fogdall is the longest-tenured manager on this fund. He started at Dimensional as a portfolio manager in 2004 and has helped manage this strategy since February 2010. Fogdall also serves as head of portfolio management and chairs Dimensional’s investment committee.

Three additional managers who oversee other ETFs and mutual funds at Dimensional round out this team. Arun Keswani, Joel Schneider, and Joseph Hohn have served as portfolio managers at Dimensional for more than a decade. Schneider is the firm’s deputy head of portfolio management for its Austin office. Hohn oversees many of Dimensional’s ETFs.

This team executes strategies built by Dimensional’s research department, which is helped by a number of prominent academics who serve as consultants. They vet the latest research and pursue only strategies that they find sensible, robust, persistent, and cost-effective.

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 International Small Cap Value ETF

DISV actively invests in a broad and diverse portfolio of small-cap companies in developed markets, excluding the US. Stock selection is based on value characteristics and weighted by market capitalization.

Dimensional International Core Equity 2 ETF

Dimensional International Small Cap ETF

Dimensional International High Profitability ETF

Dimensional Fund Advisors has announced the launch of four new international ETFs. The new ETFs, which begin trading on the Chicago Board Options Exchange today, offer broadly diversified exposure to core international equities across market caps and styles as well as component solutions focused on international small-cap, international small-cap value, and international high profitability equities.

Dimensional Launches 4 New International ETFs

AUSTIN, Texas--(BUSINESS WIRE)--Dimensional Fund Advisors, a global leader in systematic multifactor investing, expanded its exchange-traded funds (ETFs) offering with today's listing of four new international ETFs on the Chicago Board Options Exchange (Cboe). The new ETFs offer broadly diversified exposure to core international equities across market caps and styles as well as component solutions focused on international small cap, international small cap value, and international high profitab

News for Dimensional International Small Cap Value ETF ETF (DISV)