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Home Mutual Funds

Dimensional converts 4 key mutual funds to ETFs. Co-CEO unpacks move

MtR by MtR
June 15, 2021
in Mutual Funds
0
Dimensional converts 4 key mutual funds to ETFs. Co-CEO unpacks move


Dimensional Funds just made a nearly $30 billion splash in the exchange-traded fund space.

The firm on Monday launched four of its mutual funds as ETFs on the New York Stock Exchange, the largest conversion of its kind to date.

Dimensional’s U.S. Equity ETF (DFUS), U.S. Small Cap ETF (DFAS), U.S. Core Equity 2 ETF (DFAC) and U.S. Targeted Value ETF (DFAT) — all former mutual funds launched in the late 1990s and 2000s — are now available to everyday investors.

The company wanted to bring its proven tax-managed investment strategies into the world of ETFs, co-CEO and Chief Investment Officer Gerard O’Reilly told CNBC’s “ETF Edge” on Monday.

“You have this set of funds that have been managed with an eye towards tax efficiency,” O’Reilly said.

“Part of that tax efficiency came from how we managed the dividend income, but when you look now at the additional tools that ETFs bring to the table, I think that we’ll be able to achieve even higher tax efficiency ratios in those funds going forward,” he said.

The move instantly placed Dimensional among the top 15 largest ETF issuers in the United States. The $630 billion firm plans to convert two more mutual funds into ETFs in the fall.

“There’s a lot of talk and concern about what might happen to tax rates going forward, so, for those folks that are kind of thinking about that, tax management can be important,” O’Reilly said.

But while this conversion is certainly “monumental,” these four funds are somewhat unique, ETF Trends director of research Dave Nadig said in the same “ETF Edge” interview.

“These funds are in a real sweet spot for conversion,” Nadig said, noting they don’t appear in 401(k) plans and are not actively managed funds that rely on keeping their holdings private.

As such, Dimensional’s pivot may not be a major catalyst for the $21 trillion mutual fund industry to begin switching over to the ETF format, he said.

“I think it’s a great sign, but I’m a little skeptical that somehow a trillion dollars is going to follow suit,” Nadig said. “We know that a lot of active managers like to keep their trading private … and a lot of the mutual fund industry is very focused on the 401(k) industry and that makes conversions really difficult.”



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