Dimensional Fund Advisors has completed the conversion of four of its US tax-managed mutual funds, collectively housing $28.8 billion in assets, into transparent actively managed ETFs.

Dimensional has converted four of its tax-managed mutual funds, collectively housing $28.8bn, into ETFs.

The conversions bring Dimensional’s ETF product suite up to seven funds and catapult the quant specialist to within striking distance of the top ten largest ETF issuers in the US.

While the recent conversions are not the first in the US asset management industry – Guinness Atkinson converted two mutual funds with around $30 million in assets to ETFs in March – they are by far the largest, providing a yardstick for other major mutual fund managers weighing up such a move.

The size of the conversions also highlights how the shifting market share from mutual funds in favour of ETFs is likely to accelerate in the future. ETFs have, for many years, been attracting greater inflows compared to mutual funds due to their liquidity, intraday tradability, lower costs, and tax benefits.

These advantages, combined with the development of semi-transparent ETF structures that shield a manager’s proprietary investment strategy and recent regulatory changes that fast-track the listing process for certain ETFs, have led Citigroup analysts to declare “the beginning of the end for innovation within the mutual-fund wrapper”.

Dimensional, which made its ETF debut at the end of last year, already offered three actively managed multi-factor ETFs that exhibit light tilts away from conventional market cap-weights based on size, value, and profitability factors.

These three ETFs, which target US, global developed ex-US, and emerging market equities, have grown to over $1.6bn in assets, reflecting Dimensional’s brand strength and systematic factor investing credentials.

The four newly converted Dimensional ETFs, which are listed on NYSE Arca, are:

Dimensional US Equity ETF (DFUS US); expense ratio 0.11%
Dimensional US Core Equity 2 ETF (DFAC US); 0.19%
Dimensional US Small Cap ETF (DFAS US); 0.34%
Dimensional US Targeted Value ETF (DFAT US); 0.34%

Dimensional plans to convert two additional non-US market tax-managed mutual funds to ETFs in September 2021.

Gerard O’Reilly, co-CEO and CIO at Dimensional Fund Advisors, said: “We expect to have a full line-up of ETFs to offer clients alongside our mutual fund offerings and expanded separately managed accounts platform. Our strategies offer the benefits of indexing such as low costs, low turnover, and high diversification paired with the advantages of flexible implementation that provide a continuous focus on higher expected returns and robust risk management.”

Dave Butler co-CEO at Dimensional Fund Advisors, added: “For four decades, we have focused on empowering investment professionals, so they can deliver their clients the best investment experience. The solutions we are bringing to the ETF marketplace will further that mission, offering more ability to customize and tailor investments to clients’ specific needs and preferences.”