Dimensional Fund Advisors Celebrates 3-Year ETF Anniversary

Growth Trajectory: "What factors do you attribute to Dimensional's rapid growth in the ETF space over the past three years?"

I think two factors are really primarily responsible for the growth. One of those is that before we go to market with any product, regardless of whether it's an ETF or not, we want to make sure that what we can offer is unique, differentiated, and valuable in this space.

The other thing that we want to make sure happens before we go to market, is that there's actually demand out there from financial professionals and investors - that it meets some need in their portfolios.

While we've been very happy with the growth that we've seen with our ETFs in the space, we're not necessarily surprised because both of the criteria that I laid out have been met, as they have many times in the past as well.

Differentiation: "With numerous ETF providers in the market providing factor-based strategies, what sets Dimensional's offerings apart from its competitors?"

Our ETF lineup is very similar to our mutual fund lineup in the sense that it's thinking about implementation. It's about prioritizing that costs are staying low, while we're pursuing higher expected returns consistently throughout time.

One of the things that I mentioned before is to have thoughtfulness put into the approach of going to market, making sure you're fitting an actual demand, and making sure that you can add a unique perspective that's valuable for your approach.

The result is a product suite of over 30 ETFs, all of which have positive net flows over the year, which is incredible. It's not one ETF pulling up the rest of our suite, it's actually the entire product suite that is being found desirable by investors.

So, it's not just ex-ante that we're saying, "Hey, we think we have a great product out there that investors are going to be interested in." We can actually look back and say, "Well, this isn't just a one-hit wonder."

Investment Strategy: "Can you expand on how the insights and recommendations gained from conversations with investment professionals influenced how the ETFs turned out?"

The financial professionals we work with are really important to ensuring that investors keep a long-term investment approach.

Partnering with them has helped better our understanding when it comes to meeting demand out there in the market, in a way that's very unique.

Working with them has allowed us to get better insights into how clients and end investors ultimately think about asset allocation in their portfolios.

What are the gaps that they're looking to fill? What are the key components that we need to make sure that we offer if we're going to have a pure ETF product suite available where they don't have to mix ETF and mutual funds? These are the questions we asked.

Future Prospects: "What strategic direction does Dimensional see its ETF business expanding in the next five years?"

We remain committed to ETFs as a product going forward, but we are also exploring exemptive relief for dual share classes for our mutual funds.  So that is potentially something that could shape what the landscape looks like 5 years from now.

We're hopeful that it will come to fruition, but regardless of whether or not that occurs, the growth that you'll see in the ETF space will continue. We will keep innovating on the ETF side, such as looking at custom baskets or ensuring that new research is being implemented.

Finally, you're also likely to see the ETF products we offer grow, as we continue to work with financial professionals who tell us more about the demands of end investors and clients.

SEC Application: "Can you elaborate on your ETF share class exemptive relief application to the SEC? Why is this so important for Dimensional and its investors?"

We think exemptive relief is a great way to bring innovation into the ETF space in general, not just for this particular circumstance. When you think about exemptive relief, obviously you're going to ask the SEC for an exception to an outstanding rule.

The way that we've done that is by making a case that really highlights the benefits of a dual share class structure of a mutual fund and ETF.

We're arguing that being combined in the same vehicle is beneficial for both parties. That is, it's a good thing for investors and so this isn't just necessarily a marketing play or something we are doing because we think it's going to make headlines.

We're doing this because we think it's ultimately the right thing that investors want and will benefit from. The case that we've made centers around how this is beneficial for both sets of shareholders, whether ETF or mutual fund.

I think the case we've made is very strong, but we're just going to have to wait and see what the SEC thinks and what their priorities are.

New Listings: "What market segments or investment strategies will your upcoming four ETFs target (perhaps emerging market small-cap value)?"

Maybe! That's not going to happen in the imminent future though. We just launched a new equity strategy, which focuses on the large cap space, targeting deep value and higher profitability names.

So far, it's a unique product that we have only available in our ETF. We didn't have an existing mutual fund that was similar prior to launching this strategy.

The other upcoming fund launches that we have are all on the fixed income side. We have a global core plus bond, global credit, and Global ex-U.S. core income strategy.

These will all be intermediate duration investment grade and the top tier of high yield and be geographically diversified as well. That's kind of evident by the name naming convention that we've assigned to them.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.