Dimensional Funds 101: What Are They?

Learn everything you need to know about Dimensional funds and ETFs.

kent
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Research Lead
Reviewed by: Lisa Barr
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Edited by: Lisa Barr

Dimensional funds, offered by DFA, include a wide range of mutual funds but also offer a large number of exchange-traded funds launched since 2020. DFA is known for its evidence-based investment approach and its active factor-based strategies. 

Learn more about DFA funds, how they work and who can invest. 

What Is a Dimensional Fund? 

A Dimensional fund is a mutual fund or exchange-traded fund offered by Dimensional Fund Advisors (DFA). One of the distinguishing features of DFA's investment approach is its emphasis on factor-based investing. DFA believes that certain characteristics or factors, such as size, value and profitability, can explain a significant portion of an investment's returns. 

By structuring its portfolios to target these factors, DFA aims to provide investors with higher expected returns compared to traditional market-cap-weighted index funds. 

Who Can Invest in Dimensional Funds?  

DFA's investment strategies are primarily available to institutional investors and clients of select independent financial advisors.

What Are Dimensional Fund Advisors? 

Dimensional Fund Advisors is an investment management company that operates as an asset manager, offering a range of mutual funds, ETFs, models and separately managed accounts. DFA was founded in 1981 by David G. Booth and Rex Sinquefield, both of whom had ties to the academic community and a deep understanding of financial markets. 

DFA is known for its evidence-based investment approach and its focus on active implementation of factor-based strategies. DFA's investment philosophy is rooted in academic research, particularly the work of Eugene Fama and Kenneth French, who are well-known economists and proponents of the efficient market hypothesis. 

What Are Dimensional Fund ETFs? 

Dimensional Fund Advisors primarily focuses on offering mutual funds rather than ETFs. However, DFA did introduce a limited number of ETFs in recent years, expanding its product offerings to include this investment vehicle. Dimensional ETFs are designed to align with the firm's evidence-based investment approach and factor-based strategies.  

Similar to their mutual funds, Dimensional ETFs aim to capture the long-term returns associated with various equity factors, such as size, value and profitability. DFA's ETFs are primarily factor ETFs that target specific factor premiums or asset classes. The funds are structured to provide broad diversification across securities within their respective investment categories while maintaining a focus on the factors that DFA believes can contribute to long-term outperformance. 

DFA continues to expand their line-up and solutions to meet the demands of their clients. For the most accurate and up-to-date information on Dimensional Fund Advisors' ETF offerings, it is recommended to visit its official website or consult with a financial advisor who can provide the latest details and guidance. 

What Are Top DFA Funds? 

DFA offers a range of mutual funds across various asset classes and investment strategies. Although primarily known for its mutual funds, DFA also offers a range of ETFs, some of which were conversions from original mutual fund offerings. Some of the notable fund categories offered by DFA include U.S. equity funds, international equity funds, fixed income funds and target date funds, among others. 

Here are some of the top Dimensional mutual funds and ETFs, as measured by assets under management as of June 30, 2023. 

Top DFA Mutual Funds by AUM 

  • DFA U.S. Core Equity II Fund (DFQTX): This fund offers broad exposure to stocks of all sizes listed in the United States, leaning toward smaller market caps, lower valuations and higher profitability. The expense ratio for DFQTX is 0.18% and net assets are $31 billion.  
  • DFA U.S. Core Equity I Portfolio (DFEOX): Like DFQTX, DFEOX offers broad exposure to stocks of all sizes listed in the United States, leaning toward smaller market caps, lower valuations and higher profitability. Although similar to DFQTX, DFEOX has slightly different levels of tilt in the premiums. DFEOX also has a lower expense ratio of 0.14%. AUM for DFEOX is $30.2 billion.  
  • DFA International Core Equity Portfolio (DFIEX): This fund implements a slight factor approach and targets overseas stocks from developed markets across the full spectrum of market capitalization. The expense ratio for DFIEX is 0.24% and net assets are $30.0 billion. 

Top DFA ETFs by AUM 

  • Dimensional U.S. Core 2 ETF (DFAC): DFAC is an actively managed ETF that primarily aims to achieve long-term capital appreciation while minimizing tax impact. The fund holds a diversified portfolio of U.S. companies of all market capitalizations, having an increased exposure to small cap companies considered to have lower relative price and higher profitability potential. DFAC uses the same investment strategy as its original mutual fund counterpart, DFTCX. DFAC’s expense ratio is 0.17% and its AUM is $20.0 billion. 
  • Dimensional U.S. Marketwide Value ETF (DFUV): DFUV is an actively managed fund that seeks long-term capital appreciation while maximizing after-tax returns. The fund holds U.S. stocks that have a lower relative price and higher profitability potential. DFUV’s expense ratio is 0.22% and its AUM is $8.6 billion. 
  • Dimensional U.S. Targeted Value ETF (DFAT): DFAT is an active, tax-managed fund that seeks to provide long-term capital appreciation from a portfolio of U.S. mid- and small cap value stocks. DFAT uses the same investment strategy as its original mutual fund counterpart, DTMVX. DFAT’s expense ratio is 0.28% and its AUM is $7.8 billion.  

What Are the Pros and Cons of Investing in Dimensional Funds? 

Dimensional funds are mutual funds and ETFs offered by Dimensional Fund Advisors, which is an investment management company known for its evidence-based investment strategies. While DFA funds offer investors multiple advantages, such as academic research, diversification and cost efficiency, there are some disadvantages, such as limited accessibility, for investors to know before investing in these funds. 

Pros of Dimensional Funds 

  • Academic research basis: DFA employs an approach grounded in academic research, particularly in the field of finance. The company uses decades of empirical evidence to develop its investment strategies. This evidence-based approach appeals to investors who value a disciplined and research-driven investment philosophy. 
  • Diversification: Dimensional funds emphasize diversification across asset classes, geographies and company sizes. They offer a range of funds covering various market segments, which can help reduce the impact of individual security or sector risks on portfolio performance. Diversification is a key strategy to manage risk. 
  • Cost efficiency: Dimensional funds are known for their low-cost investment strategies. They aim to keep expenses low by employing systematic investment strategies, minimizing trading costs and using efficient investment structures. This focus on cost efficiency can benefit investors by reducing the drag of expenses on portfolio returns. 
  • Long-term focus: Dimensional funds typically take a long-term investment approach, which aligns with the principles of disciplined investing. They encourage investors to stay invested over the long term, avoiding short-term market timing and emotional decision-making. This approach can help investors achieve their financial goals by emphasizing the power of compounding. 

Cons of Dimensional Funds 

  • Limited accessibility: Dimensional funds are primarily available through financial advisors or institutional channels. This means that individual investors may face challenges accessing their mutual funds directly, although their ETFs are available to individuals.  
  • Performance constraints: Dimensional funds' investment approach is based on capturing market returns rather than attempting to outperform the market. As a result, the funds may not consistently outperform benchmark indexes or actively managed funds during periods of significant market outperformance. Investors seeking the potential for higher returns through active management might find this approach less appealing. 

Bottom Line 

Dimensional funds are highly rated mutual funds and ETFs offered by Dimensional Fund Advisors. Investors should keep in mind that while DFA mutual funds are only accessible through investment advisors, DFA ETFs are accessible to individual investors. It's crucial to evaluate your investment goals, risk tolerance and preferences when considering any investment option, including Dimensional funds.  

Kent Thune is Research Lead for etf.com, focusing on educational content, thought leadership, content management and search engine optimization. Before joining etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 

 

Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 

 

Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.