ETF Share Classes: A Win for Investors

When Dimensional filed for exemptive relief to offer ETF share classes in July 2023, we believed it would benefit the current investors in our mutual funds and future investors in ETF share classes. Over the past two years, we have worked closely with the Securities and Exchange Commission (SEC), explaining our belief, listening to their feedback, and proposing a solution that has the potential to work for the industry at large.

We are enormously pleased to report today the SEC has published a notice indicating they intend to grant our funds relief to offer ETF share classes.¹ Given the support we have received from the financial professionals we work with, we hope you are equally pleased. We believe this is the right thing to do for investors and are confident in our belief that Dimensional ETF share classes will bring benefits to current and future investors.

Since launching our first systematic active ETFs in 2020, Dimensional has become the largest issuer of active ETFs.² We have honed the ability to use ETF custom baskets for efficient and flexible rebalancing. These custom baskets can help keep tax costs low while also lowering portfolio transaction costs. With ETF share classes, these benefits can also be shared by mutual fund investors.

Shareholders in an ETF share class could benefit from the daily cash flows of shareholders in the mutual fund. Cash flows can be used for the dual purpose of strategically rebalancing the fund while allowing for additional flexibility in the use of custom create and redeem baskets. This flexibility can lower total portfolio transaction costs. Further, we believe ETF share classes could benefit from the existing broad base of investors in our mutual funds, the track record of those mutual funds, and the benefits of scale that come with a well-established fund, including diversification, reduced other expenses, and increased securities lending revenue.

Notably, we believe that these benefits can be brought to investors as soon as ETF share classes are launched. We know many investors are eager for the ability to exchange mutual fund shares for ETF shares without incurring transaction costs or taxes. However, investors’ custodial platforms will need to facilitate these transactions, and readiness will likely vary across platforms. While we plan to work closely with custodial platforms and the fund’s transfer agent to facilitate these transactions, we do not need to wait for their readiness to launch ETF share classes. We intend to launch as soon as we are operationally ready.³

Since Dimensional filed for exemptive relief, over 70 other asset managers representing approximately $27 trillion in fund assets have followed our lead. If exemptive relief is extended more broadly, across even just a portion of these assets, we could be at the forefront of a revolution in the fund landscape. The expansion of the ETF share class structure represents a meaningful enhancement to investor choice.

Dimensional offers many transparent, diversified, and low-cost investment solutions. In our view, that approach is well suited to the ETF share class structure. If exemptive relief is granted broadly, however, investors should consider the investment approach when evaluating an ETF share class. Capacity, cash exposure, tax efficiency, pricing structures, and the impact of daily holdings disclosures are all important considerations when assessing an ETF share class.

• Capacity and cash exposure: Dimensional’s solutions are generally broadly diversified, low-turnover, and flexibly implemented, which means we can manage assets at a greater scale than can many of our peers. This allows us to have deep capacity across many asset classes. Dimensional also consistently focuses on delivering the targeted asset class exposure of our solutions, which includes keeping cash levels low. Our strategies typically have well below 1% in unequitized cash, which is generally low compared to what we observe across other mutual fund managers. We expect to be able to maintain low cash exposure levels in ETF share class funds as well.


• Tax-efficiency: While the ETF share class structure has the potential to improve fund tax efficiency, we believe the primary drivers of a strategy’s tax efficiency are its investment philosophy and approach to implementation. Across mutual funds and ETFs, Dimensional’s approach enables tax efficiency. Our mutual funds have a long track record of tax efficiency, even compared to peer ETFs. We believe this positions our funds particularly well to be able to tax-efficiently manage both ETF and mutual fund share classes.


• Pricing structure: Our pricing strategy is already conducive to the ETF share class structure. We typically price the management fees for similar strategies alike whether in a mutual fund or ETF; our funds’ other operational expenses are generally low, regardless of vehicle type; and our mutual funds do not charge 12b-1 fees, which some other mutual fund providers charge (and ETFs currently do not).


• Daily holdings disclosure: Since launching ETFs in 2020, we have been able to easily accommodate the more frequent holdings disclosure requirements, and we have demonstrated our ability to keep costs low and solutions tax efficient in both the ETF and mutual fund structure.

Investors may soon see a wave of ETF share classes, which makes it more important than ever for investors to look beyond the investment wrapper and to the investment proposition within. What will set Dimensional’s solutions apart is our time-tested investment philosophy, flexible active implementation, and a commitment to keeping costs low while constantly seeking to enhance investors’ outcomes. It’s why over 20 years, 100% of Dimensional funds have survived and 84% have outperformed their benchmarks compared to the active fund industry, while just 47% of funds have survived over the same period and only 16% have survived and outperformed their benchmarks.⁴

Dimensional will always be committed to seeking to do the right thing for investors. This commitment drives our efforts to innovate and advocate. ETF share classes are a next step for Dimensional. Our internal teams have been earnestly preparing for over two years to launch ETF share classes, including working closely with our fund service providers to ensure their readiness as well. If and when we receive a final order of exemptive relief from the SEC to offer ETF share classes, we will be ready to efficiently launch ETF share classes. And we won’t stop there; we will continue to work to enhance our strategies from an investment and operational perspective. We will continue to advocate for industry advancements and policy solutions that improve investment options for investors.

Data Sample

The sample includes US-domiciled, USD-denominated open-end and exchange-traded funds (ETFs) in the following Morningstar categories. Non-Dimensional fund data provided by Morningstar. Dimensional fund data is provided by the funds’ third-party fund accountant. Dimensional funds or subadvised funds whose access is or previously was limited to certain investors are excluded. Dimensional Retirement Equity Fund included. Index funds, load-waived funds, and funds of funds are excluded from the industry sample.

Methodology

The beginning samples include funds as of the start of each respective time period. Surviving funds are those with return observations for every month of the sample period. Each fund is evaluated relative to its primary prospectus benchmark. Where the full series of primary prospectus benchmark returns is unavailable, non-Dimensional funds are instead evaluated relative to their Morningstar category index. Outperformers are funds that survived the sample period and whose cumulative net return over the period exceeded that of their respective benchmark. We aggregate funds with multiple share classes to the strategy level.

Morningstar Categories (Equity)

Equity fund sample includes the following Morningstar historical categories: Diversified Emerging Markets, Europe Stock, Foreign Large Blend, Foreign Large Growth, Foreign Large Value, Foreign Small/Mid Blend, Foreign Small/Mid Growth, Foreign Small/Mid Value, Global Real Estate, Japan Stock, Large Blend, Large Growth, Large Value, Mid-Cap Blend, Mid-Cap Growth, Mid-Cap Value, Miscellaneous Region, Pacific/Asia ex-Japan Stock, Real Estate, Small Blend, Small Growth, Small Value, Global Large-Stock Blend, Global Large-Stock Growth, Global Large-Stock Value, and Global Small/Mid Stock.

Morningstar Categories (Fixed Income)

Fixed income fund sample includes the following Morningstar historical categories: Corporate Bond, High Yield Bond, Inflation-Protected Bond, Intermediate Core Bond, Intermediate Core-Plus Bond, Long-Term Bond, Intermediate Government, Long Government, Muni California Intermediate, Muni California Long, Muni Massachusetts, Muni Minnesota, Muni National Intermediate, Muni National Long, Muni National Short, Muni New Jersey, Muni New York Intermediate, Muni New York Long, Muni Ohio, Muni Pennsylvania, Muni Single State Intermediate, Muni Single State Long, Muni Single State Short, Muni Target Maturity, Short Government, Short-Term Bond, Ultrashort Bond, Global Bond, and Global Bond-USD Hedged.

Index Data Sources

Index data provided by Bloomberg, MSCI, Russell, FTSE Fixed Income LLC, and S&P Dow Jones Indices LLC. Bloomberg data provided by Bloomberg. MSCI data © MSCI 2025, all rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. FTSE fixed income indices © 2025 FTSE Fixed Income LLC. All rights reserved. S&P data © 2025 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. US domiciled mutual funds and US-domiciled ETFs are not generally available for distribution outside the US.