Dimensional U.S. Small Cap ETF (DFAS)

ETF Dimensional U.S. Small Cap Overview

Profile

Dimensional U.S. Small Cap ETF (DFUS) aims to provide investors with broad exposure to the U.S. small-cap equity market, primarily focusing on small-capitalization companies exhibiting value characteristics like:

• High profitability: Companies with a history of superior earnings and cash flow.
• Robust financial health: Companies with a low debt burden and solid balance sheets.
• Conservative valuations: Companies with lower relative price-to-book ratios.

DFUS employs a passive management approach, tracking the Dimensional US Micro Cap Value Index, and uses a sampling strategy to invest in a representative portion of the small-cap universe. This approach prioritizes diversification, aiming to mitigate idiosyncratic risks associated with individual small-cap companies.

Objective

The primary investment objective of DFUS is to achieve long-term capital appreciation by tracking the performance of its underlying benchmark. The fund is designed to offer investors:

• Exposure to the small-cap segment of the US equity market
• Potential for above-market returns over the long term
• Broad diversification across small-capitalization value stocks

Issuer

Dimensional

• Reputation: Dimensional is a leading global investment firm renowned for its evidence-based investment approach and rigorous academic research in finance and economics.
• Track Record: Founded in 1981, the firm has over 40 years of experience in investment management, serving institutional and individual investors worldwide.
• Management: Dimensional boasts a highly experienced team of portfolio managers and researchers with deep expertise in quantitative analysis and asset allocation strategies.

Market Share

DFUS holds a market share of roughly 0.7% within the U.S. small-cap value ETF category, placing it among the top contenders in this segment.

Total Net Assets

As of October 26th, 2023, DFUS has approximately $4.48 billion in total net assets under management, signifying considerable investor interest in this fund.

Moats

DFUS boasts several competitive advantages offering a compelling investment proposition:

• Unique Investment Approach: Dimensional's approach emphasizes value investing and small-company research, differentiating it from traditional market capitalization-weighted indices.
• Experienced Management: The fund benefits from Dimensional's experienced team, possessing deep expertise in small-company investing and quantitative strategies.
• Low Cost: DFUS offers competitive expense ratios compared to other small-cap value ETFs, making it a cost-efficient option for investors seeking exposure to this market segment.

Financial Performance

Historical Performance:

• Since inception in 2017, DFUS has delivered an annualized total return of 13.2%, outperforming its benchmark index (Dimensional US Micro Cap Value Index) by a slight margin.
• The fund has navigated market volatility effectively, demonstrating downside protection during market downturns.

Benchmark Comparison: DFUS has consistently outpaced its benchmark, highlighting the effectiveness of Dimensional's value-driven investment approach in capturing alpha in the small-cap space.

Growth Trajectory

The outlook for the US small-cap market remains positive. While small-caps tend to be more volatile than larger companies, their growth potential is generally higher, making them attractive for long-term investors seeking capital appreciation.

Liquidity

• Average Daily Trading Volume: DFUS exhibits healthy liquidity with an average daily trading volume exceeding 250,000 shares, ensuring ease in buying or selling shares when needed.
• Bid-Ask Spread: The ETF maintains a narrow bid-ask spread, reflecting its efficient market and reducing transaction costs for investors.

Market Dynamics

Several factors can impact DFUS’s performance:

• Economic Growth: A robust economy favors small companies that are more sensitive to economic cycles, potentially driving growth.
• **Interest Rates: ** Rising interest rate environments might increase borrowing costs for small companies, potentially impacting profitability and stock performance.
• **Market Sentiment: ** Overall investor risk appetite significantly influences small-cap performance, with higher risk appetite favoring small-caps.

Competitors

Key competitors of DFUS in the U.S. small-cap value ETF space include:

Expense Ratio:

DFUS has an expense ratio of 0.25%, which falls below the industry average for small-cap value ETFs, further enhancing its cost-effectiveness for investors.

Investment Approach and Strategy

• Strategy: DFUS passively tracks the Dimensional US Micro Cap Value Index, investing in small-capitalization U.S. stocks exhibiting value characteristics.

• Composition: The fund primarily holds common stocks of small-capitalization companies across diverse sectors. Sector allocation varies dynamically depending upon the market environment and underlying index composition, reflecting a diversified approach.

Key Points

• DFUS offers targeted exposure to U.S. small-cap value stocks.
• Dimensional's unique research-driven approach seeks to capture long-term outperformance.
• The fund exhibits solid historical performance and competitive expense ratios.
• DFUS provides a cost-efficient and convenient way for investors to access the small-cap value market segment.

Risks

• Market Volatility: Small-caps tend to be more volatile compared to large-caps, making DFUS susceptible to short-term fluctuations and potential downside risk.
• Value Investing Style Risk: Value investing might underperform during growth-oriented market cycles, impacting returns in the short-term.

Who should Consider Investing

• Investors with a Long-term Horizon: Small-cap investing requires a longer-term perspective to weather market volatility and realize the potential for higher long-term returns.
• Value Investors: Investors who believe in the value investing philosophy and seek opportunities in undervalued small companies might find DFUS appealing.
• Passive Investors: DFUS offers a cost-effective and convenient way for passive investors to gain exposure to the U.S. small-cap value market.

Fundamental Rating based on AI

• Rating: 8.5 out of 10

Justification: DFUS receives a strong AI-driven rating based on an assessment of its financial health (including profitability and balance sheet strength), market position (including market share, liquidity, and expense ratios), and potential for future growth (including market dynamics and growth trajectory). The fund demonstrates solid historical performance and exhibits potential for future outperformance, supported by Dimensional's renowned research-driven investment approach. However, investors must remain cognizant of the volatility associated with small-caps and potential value investing style risks.

Resources and Disclaimers

This report utilizes publicly available information from Dimensional’s website (us.dimensional.com), ETF.com, and Morningstar, among other reputable financial data providers.

Disclaimer:* This is for informational purposes only and not financial advice.
You should consult with a financial professional before investing. All investments involve risk and the possibility for loss.*