ETF Comparison: Vanguard Total World Stock ETF (VT) Versus Dimensional World Equity ETF (DFAW)

Total Cost of Ownership

This category is a fairly broad sweep for VT. VT charges a 0.06% expense ratio compared with 0.24% for DFAW, making DFAW four times as expensive. On a $10,000 investment, that's roughly $6 versus $24 in annual fund expenses, assuming the investment value remains constant.

That said, I wouldn't characterize DFAW as expensive on its own. A 0.24% expense ratio is quite reasonable for an actively managed global equity strategy, particularly compared with many legacy active mutual funds and even some actively managed factor ETFs.

Fund expenses aren't the only cost to consider, though. Trading liquidity matters as well, and VT's enormous asset base and trading volume give it another advantage. Its 30-day average bid-ask spread is around 0.02%, compared with 0.073% for DFAW.

Verdict: DFAW's spread is more than three times as wide, although 0.073% is hardly excessive for most long-term investors. Still, VT wins on both recurring expenses and trading costs.

Methodology and Exposure

This is where the comparison gets more interesting. Despite substantial overlap in their holdings and broadly similar historical returns, these ETFs arrive at their global equity exposure in very different ways.

VT is the simpler of the two. It passively tracks the FTSE Global All Cap Index, providing exposure to more than 9,700 large-, mid- and small-cap stocks across the U.S., international developed markets and emerging markets. Companies are weighted primarily according to their market capitalization.

DFAW takes a more active approach using a fund-of-funds structure. Rather than directly owning its entire global portfolio like VT, DFAW allocates among other Dimensional strategies covering U.S., international developed and emerging-market equities, along with real estate.

The result is similarly broad diversification across thousands of stocks, but Dimensional isn't simply accepting market capitalization as the final word on portfolio construction. Its approach emphasizes characteristics including smaller market capitalizations, lower relative prices and higher profitability.

If those characteristics sound familiar, there's a reason. Size, value and profitability are closely associated with the academic factor research of Eugene Fama and Kenneth French, and Dimensional has spent decades implementing similar concepts in investable portfolios.

That produces some meaningful differences in exposure. DFAW currently carries roughly 10 percentage points more U.S. equity exposure than VT, while holding less technology exposure.

DFAW is also slightly less top-heavy. Its 15 largest holdings represent a somewhat smaller share of assets, with differences particularly apparent among the Magnificent Seven stocks.

Verdict: I prefer DFAW's methodology here. There's nothing inherently wrong with market-cap weighting, and VT implements it exceptionally efficiently. But tilting a globally diversified portfolio toward value, profitability and smaller companies strikes me as a sensible way to depart from pure market-cap exposure without turning the portfolio into a concentrated active bet.

Risk and Return

DFAW doesn't have nearly as much history as VT, so this comparison necessarily focuses on a relatively short common period. Over the trailing one-year and year-to-date periods, returns have been broadly similar. Both ETFs have also attracted net inflows, although VT's flows remain considerably larger given its scale and longer-established investor base.

The risk statistics are similarly close. DFAW has exhibited slightly lower volatility over the available common period and experienced a somewhat smaller maximum drawdown. Neither difference has been large enough to suggest these are fundamentally different risk profiles. Both remain broadly diversified, essentially fully invested global equity portfolios.

Verdict: On returns alone, there's little separating them. But at this point in the market cycle, I particularly like the potential diversification benefit from DFAW's value, profitability and size tilts. Its 0.24% expense ratio also keeps the hurdle for active management relatively low. Given the broadly comparable returns so far, slightly better observed risk characteristics and relatively inexpensive implementation of those factor tilts, I'd give DFAW the edge here.

Please note that this article reflects the author’s personal views and does not represent the opinions of the publication or its affiliates. It is for informational purposes only and does not constitute investment advice. It is essential to seek guidance from a registered financial professional before making any investment decisions.