DFA International Small Company Portfolio follows a standout disciplined strategy and offers one of the most diverse portfolios in the foreign small/mid-blend Morningstar Category.

This portfolio holds stocks representing the smallest 12.5% of foreign developed markets by market cap and includes those with market caps as low as $50 million. This is further down the market-cap ladder than its competitors venture, allowing the fund to cover more names without taking on much additional risk. From this universe, the managers avoid stocks with the highest asset growth, highest valuations, and lowest profitability, which have historically been associated with poor performance. They weight this diverse collection of stocks by market cap, an approach that helps reduce turnover and the associated trading costs. The portfolio’s extensive diversification mitigates the impact of the worst-performing names. It has one of the broadest funds in the category, holding thousands of stocks with less than 5% of assets in its 10 largest names.

The managers take additional steps to reduce trading costs, which can be especially punitive among small-cap foreign stocks. They provide traders with a pool of eligible stocks to transact as the fund isn’t rigidly tied to an index. Traders can transact patiently to minimize market-impact costs and have the freedom to substitute one stock for a similar alternative to further mitigate trading expenses.

All these elements cause this fund to look a little different from the MSCI ACWI ex USA SMID Index. It does not hold stocks from emerging markets, and it has a smaller average market cap than the benchmark because it ignores the mid-cap segment of the market. Its average price/book ratio also runs mildly lower. These differences and a cost-conscious approach have translated into a small advantage. The fund beat the index by about 1.1 percentage points annualized over the trailing 10 years through January 2024.

Dimensional charges 0.39% per year for the mutual fund and exchange-traded fund, making them less expensive than many of their peers in the foreign small/mid-blend category.

Analyst Rating

An extensive small-cap portfolio with some modest advantages.

Senior Analyst

Daniel Sotiroff

Leggett & Platt

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This rules-based strategy delivers. It produces a well-diversified portfolio that avoids names with poor expected performance while mitigating trading costs. It earns an Above Average Process Pillar rating.

Above Average

Process

Dimensional’s multimanager team structure and global network of trading desks support an Above Average People Pillar rating. The named managers on this fund collaborate with the firm’s trading desks around the world to execute this strategy in the most cost-effective way possible. Spreading management responsibilities across several managers reduces the impact of personnel turnover when it does occur.

Jed Fogdall is the longest-tenured manager on this fund. He started at Dimensional as a portfolio manager in 2004 and has helped manage this strategy since February 2010. Fogdall also serves as head of portfolio management and chairs Dimensional’s investment committee.

Three additional managers that oversee other ETFs and mutual funds at Dimensional round out this team. Arun Keswani, Joel Schneider, and Joseph Hohn have served as portfolio managers at Dimensional for more than a decade. Schneider is the firm’s deputy head of portfolio management for its Austin office. Hohn oversees many of Dimensional’s ETFs.

This team executes strategies built by Dimensional’s research department, which is helped by a number of prominent academics who serve as consultants. They vet the latest research and pursue only strategies that they find sensible, robust, persistent, and cost-effective.

People

Dimensional’s mutual fund business has faced some tough challenges over the past few years. Despite large and persistent outflows, the firm has remained steadfast in its philosophy and responded in a way that benefits clients while improving its competitiveness. Dimensional maintains its High Parent Pillar rating.

More than $80 billion left Dimensional’s mutual funds between 2020 and 2022, but its response to the turmoil has been admirable. The firm started reducing fees in early 2020, and it continued the effort with three additional rounds of cuts.

Dimensional’s endeavor into exchange-traded funds was the biggest step it took to shore up its business. The firm converted seven tax-managed mutual funds to ETFs between mid-2021 and mid-2022. Along the way, it launched an additional two dozen that largely follow the same strategies underpinning the existing mutual funds. The firm also reinvested in its separate accounts platform by bolstering the technology used to manage these portfolios. The effort was aimed at improving operational efficiencies.

These measures appear to be paying off. The firm’s new ETFs have proved popular among its clients. In 2022, they brought in enough new money to nearly offset the outflows from its mutual funds. The separate account platform’s operational improvements, along with the new ETF lineup’s tax efficiency, should benefit clients and strengthen the firm’s prospects.

High

Parent

Dimensional International Small Cap ETF

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Dimensional Fund Advisors has announced the launch of four new international ETFs. The new ETFs, which begin trading on the Chicago Board Options Exchange today, offer broadly diversified exposure to core international equities across market caps and styles as well as component solutions focused on international small-cap, international small-cap value, and international high profitability equities.

Dimensional Launches 4 New International ETFs

AUSTIN, Texas--(BUSINESS WIRE)--Dimensional Fund Advisors, a global leader in systematic multifactor investing, expanded its exchange-traded funds (ETFs) offering with today's listing of four new international ETFs on the Chicago Board Options Exchange (Cboe). The new ETFs offer broadly diversified exposure to core international equities across market caps and styles as well as component solutions focused on international small cap, international small cap value, and international high profitab

Dimensional Lists Four New International Equity ETFs

News for Dimensional International Small Cap ETF ETF (DFIS)