Multi-factor funds have become a popular way for investors to build exposure to multiple factors. While value, growth, and momentum are the most common factors, many funds leverage a proprietary mix of criteria to build a portfolio. And going a step further, many multi-factor funds take an active approach to maximize flexibility.
Dimensional Fund Advisors, a leader in the actively-managed ETF space, recently launched two new multi-factor funds targeting large-cap value stocks and real estate businesses. These timely launches come as investors prepare their portfolios for a potential recession by moving into value stocks while using real estate as a bond alternative.
Let’s take a closer look at Dimensional’s newly launched active ETFs and why investors may want to consider them for their portfolios.
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
US Large Cap Value
The Dimensional US Large Cap Value ETF (DFLV) leverages the firm’s systematic approach to equities, prioritizing larger companies with lower relative price shares and higher profitability. In assessing relative price, the fund managers look at book value, cash flow, and earnings ratios, although they may adjust these criteria over time.
In addition to looking at value factors, portfolio managers may increase or reduce exposure to eligible companies or exclude a company based on short-term considerations, like price momentum. They may also sell futures contracts and options on futures or lend portfolio securities to generate additional income on a case-by-case basis.
The fund’s most significant holdings include:
- Exxon Mobil Corp. – 5.1%
- JPMorgan & Chase Co. – 4.5%
- Chevron Corp. – 3.8%
- Pfizer Inc. – 3.7%
- ConocoPhillips – 2.6%
The fund has a modest 0.22% net expense ratio, making it an affordable large-cap value position for any investor.
Global Real Estate
The Dimensional Global Real Estate ETF (DFGR) focuses on real estate investment trusts and real estate operating companies of any size in both developed and emerging markets. While the managers weigh the portfolio by market capitalization, they may tilt the exposure based on value, profitability, liquidity, and momentum factors.
Like the DFLV ETF, the DFGR ETF may lend its portfolio securities to generate additional income. The fund also intends to invest in some American Depositary Receipts (ADRs) to gain exposure to foreign securities while mitigating currency risks with forward contracts. The managers aim for exposure to at least three countries.
The most significant holdings include:
- Prologis Inc. – 5.8%
- American Tower Corp. – 5.6%
- Equinix Inc. – 3.4%
- Crown Castle Inc. – 3.3%
- Public Storage – 2.5%
The fund’s modest 0.24% net expense ratio also makes it among the cheapest actively-managed real estate funds.
The Bottom Line
Dimensional Fund Advisors’ new actively-managed multi-factor ETFs add to its move into the ETF world. While it still maintains most of its assets in mutual funds, the asset manager has a roster of about 30 ETFs that collectively have about $70 billion in assets under management, making it the largest provider of active ETFs in the world.
Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.
