Morningstar - Q1 2023 - 54

Strategies
The Alpha Is in the Details
Dimensional International Core Equity Market ETF uses modest
factor tilts to great advantage.
Zachary Evens
BEST IDEAS: PASSIVE
This article is adapted from the ETF's Morningstar Global Fund Report dated
Nov. 29, 2022; performance is updated through Dec. 31, 2022.
Dimensional International Core Equity Market ETF DFAI applies modest
factor tilts to nearly all of the developed international stock market.
Low fees only heighten the appeal of this fund, supporting a Morningstar
Analyst rating of Gold.
The fund targets small-, mid-, and large-cap stocks from overseas developed
markets, pulling in around 3,300 names. It tilts toward smaller and
more-profitable companies trading at lower valuations. The managers assign
a multiplier to every holding, which scales their market-cap weights.
They assign larger multipliers, and thus more prominence, to smaller and
more-profitable companies trading at lower valuations. Stocks with
these characteristics have historically been associated with market-beating
returns. Therefore, these tilts should give this fund an edge when those
styles are in favor.
This modified approach to market cap weighting also keeps turnover in
check, minimizing the associated trading costs and benefiting investors' bottom
lines. It captures the market's consensus opinion of each stock's value, an
opinion that tends to be accurate over the long term. The resulting
portfolio offers investors superior diversification. Just 10% of its assets are
concentrated in its top 10 holdings, further damping the effect of any
single stock on overall performance.
Over the fund's brief history, broad diversification and factor tilts contributed
to strong relative performance. Since its November 2020 inception, it managed
to outperform the foreign large-blend Morningstar Category benchmark,
the MSCI ACWI ex USA Index, by more than 3 percentage points annualized.
Increased exposure to small-cap stocks pushed volatility higher than the
benchmark, but the fund still eked out a small risk-adjusted return advantage.
The expense ratio of this fund sits at 0.18%, which ranks in the category's
cheapest quintile. Its low fee reduces the hurdle to beat the benchmark and
should support strong benchmark-relative performance over the
long term. K
Zachary Evens is an associate analyst at Morningstar Research Services LLC.
54
Morningstar Q1 2023
Dimensional International Core Equity Market ETF DFAI
Stats 12/31/2022
Morningstar Analyst Rating
Œ
Total Assets
$2.4 Billion
Process
Above Average
Growth of 10K 12/31/2022
$14K
12
10
8
11/17/2020
08/2021
Morningstar Style Box 12/31/2022
Value
Blend
Growth
Snapshot as
of most recent
portfolio.
04/2022
Risk Profile 12/31/2022
Period
1-Yr Return
1-Yr Standard Deviation
1-Yr Sharpe Ratio
Dimensional
Internatl Core
Equity Market ETF
10.51
Morningstar
Developed
Markets ex-US
10.19
Morningstar Category
Foreign Large Blend
1-Yr Annlzd Return
-12.86
Morningstar Pillars 12/31/2022
People
Above Average
Parent
High
Expense Ratio
0.18%
1-Yr % Rank in Cat
17
Fund (%)
-12.86
21.14
-0.66
1-Yr Max Drawdown -26.88
Top 5 Sectors 12/31/2022
■ Fund ❙ Category Average
y Financial Services
p Industrials
t Consumer Cyclical
d Healthcare
r Basic Materials
0%
5
18.66
14.54
10.43
10.77
7.57 9.92
10
15
20
11.23
12.68
16.68
18.76
MORN Dev
Mkt ex-US
-15.26
21.57
-0.74
-28.45
Small
Mid
Large
https://www.morningstar.com/etfs/arcx/dfai/quote https://www.morningstar.com/authors/2578/zachary-evens
Morningstar - Q1 2023

Table of Contents for the Digital Edition of Morningstar - Q1 2023
