Summary
- Dimensional U.S. Targeted Value ETF is an actively managed fund focused on small cap value stocks.
- It is heavy in financials, while almost ignoring real estate and utilities.
- Price history since listing date is short, but encouraging.
DFAT strategy and portfolio
The Dimensional U.S. Targeted Value ETF ( DFAT ) invests in small cap companies with value characteristics. It claims an inception on 12/11/1998 and a listing on 06/14/2021. Independent data providers have price history starting from the latter date. The fund has $8.1 B in assets, 1614 holdings, a 12-month distribution yield of 1.23% and a total expense ratio of 0.29%. DFAT is an actively managed fund, it doesn't track any index. The annual turnover is 8% of average portfolio value.
As described in the prospectus by Dimensional , "the Advisor implements an integrated investment approach that combines research, portfolio design, portfolio management, and trading functions (…) The Portfolio may emphasize certain stocks, including smaller capitalization companies, lower relative price stocks, and/or higher profitability stocks (…) The criteria the Advisor uses for assessing relative price and profitability are subject to change from time to time". In other words, it looks more like a discretionary approach than a strictly rules-based one.
The fund invests exclusively in U.S. companies. About 75% of asset value is in small and micro-caps, the rest is in mid-caps. Dimensional takes the Russell 2000 Value Index as a benchmark for this fund. In this article, DFAT will be compared to the iShares Russell 2000 Value ETF ( IWN ).
Aggregate valuation ratios are significantly cheaper than for the Russell 2000 ( IWM ), and a bit cheaper than for IWN.
DFAT | IWM | IWN | |
Price / Earnings TTM | 9.07 | 11.6 | 9.8 |
Price / Book | 1.46 | 2 | 1.38 |
Price / Sales | 0.71 | 1.19 | 0.95 |
Price / Cash Flow | 7.55 | 9.95 | 8.07 |
Source: Fidelity
The next chart compares sector weights with the Russell 2000 Value Index. There is a common pattern: financials come first and industrial are in second position. Compared to the passive index, DFAT underweights healthcare and almost ignores real estate and utilities.
Sector Breakdown (Chart: author; data: Dimensional)
The top 10 holdings, listed below with their weights and valuation ratios, represent 6.7% of asset value. No holding weighs more than 1%, so risks related to individual stocks are very low.
Ticker | Name | Weight | P/E ttm | P/E fwd | P/Sales | P/Book | P/FCF | Yield% |
Reliance Steel & Aluminum Co. | 0.96% | 8.22 | 12.21 | 0.86 | 2.06 | 9.37 | 1.63 | |
BorgWarner, Inc. | 0.69% | 12.47 | 10.20 | 0.74 | 1.62 | 17.04 | 1.37 | |
AutoNation, Inc. | 0.67% | 5.73 | 6.53 | 0.26 | 3.41 | 7.95 | 0 | |
Arrow Electronics, Inc. | 0.67% | 5.39 | 6.98 | 0.20 | 1.31 | N/A | 0 | |
Penske Automotive Group, Inc. | 0.67% | 7.77 | 9.08 | 0.37 | 2.46 | 19.02 | 1.70 | |
AGCO Corp. | 0.62% | 11.77 | 10.29 | 0.83 | 2.70 | 229.61 | 3.91 | |
Knight-Swift Transportation Holdings, Inc. | 0.62% | 12.19 | 14.29 | 1.25 | 1.34 | 15.52 | 0.97 | |
Dillard's, Inc. | 0.62% | 6.93 | 12.02 | 0.86 | 3.74 | 10.82 | 4.48 | |
PulteGroup, Inc. | 0.61% | 4.83 | 7.28 | 0.75 | 1.37 | 28.20 | 1.19 | |
Steel Dynamics, Inc. | 0.55% | 5.70 | 10.14 | 0.94 | 2.56 | 6.29 | 1.15 |
Ratios: Portfolio123
Performance
Dimensional claims an annualized return since inception of 9.61% before tax vs. 8.51% for the Russell 2000 Value Index. The next chart compares DFAT in total return since its listing date (06/14/2021) with IWM, IWN and a close competitor: Avantis U.S. Small Cap Value Fund ( AVUV ). AVUV is also an actively managed small cap value ETF, and it has been reviewed here .
DFAT vs. IWM, IWN, AVUV since June 2021 (Portfolio123)
Comparing DFAT with a simple, but efficient, quantitative value strategy
The next table compares DFAT since 6/21/2021 with a "Russell 2000 Value set", composed of Russell 2000 stocks whose price/earnings and price/net free cash flow ratios are below industry medians. The subset is reconstituted in equal weights every quarter.
Total Return | Annual Return | Drawdown | Sharpe ratio | Volatility | |
DFAT | 9.67% | 5.63% | -20.07% | 0.3 | 22.95% |
R.2000 Value set | 3.55% | 2.09% | -23.92% | 0.06 | 22.71% |
IWM | -15.65% | -9.60% | -31.91% | -0.4 | 23.08% |
IWN | -7.95% | -4.79% | -25.68% | -0.11 | 22.84% |
Past performance is not a guarantee of future returns. Data Source: Portfolio123
The value set does much better than IWM and IWN, and DFAT does even better. Moreover, its maximum drawdown is more shallow.
The fund's strategy is not disclosed in details, but the short price history suggests it is smarter than passive value indexes, which generally put too much emphasis on the price/book ratio and don't take into account industry classification.
Takeaway
Dimensional U.S. Targeted Value ETF is an actively managed fund invested in over 1600 small caps companies selected for their valuation and profitability. The strategy combines size and value, two of the three original factors of the Fama-French model, then adds profitability. The fund is quite old, but independent databases have price history only since June 2021, due to listing date. The current sector profile is not far from the Russell 2000 Value Index, except it drastically underweights real estate, utilities and healthcare. The fund is cheaper than the small cap value benchmark regarding valuation ratios, and, most importantly, it has outperformed it by about 17 percentage points in 20 months. Since inception, it is almost tied with Avantis U.S. Small Cap Value Fund, another actively managed fund. Besides an outstanding performance in the last 1.5 years, both funds have also similar risks: a heavy exposure to financials (more than 25% of asset value), and a lack of transparency in the strategy. If you are interested in small caps and ready to trust the management team, DFAT and AVUV are worth a closer look.
For further details see:
DFAT: Actively Managed Value Fund, Recently Outperforming