🏗️DFAC: Building Wealth with Core U.S. Equity

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Hello, ETF UNO readers! Today, we’re highlighting the Dimensional U.S. Core Equity 2 ETF $DFAC ( ▲ 0.36% ) , a growing favourite among investors seeking an alternative to traditional index funds.

Unlike many ETFs that track established indexes like the S&P 500, DFAC is actively managed and employs factor investing. This strategy focuses on characteristics linked to higher returns, specifically smaller-cap companies, value stocks, and firms with strong profitability. Does DFAC fit into a modern ETF portfolio? Let’s find out!

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What is DFAC?

The main attraction of DFAC is its active, factor-based investment strategy. Managed by Dimensional Fund Advisors (DFA), DFAC utilises decades of academic research to select stocks within the U.S. equity market. The fund employs a systematic, rules-based approach that emphasises three key factors: size, value, and profitability.

DFAC intentionally prioritizes smaller companies, relatively inexpensive stocks (value), and firms with strong profitability—traits that academic research indicates have historically provided a long-term advantage. As a result, the portfolio significantly differs from the overall market. For example, it tends to have a heavier allocation in sectors such as Industrials, Energy, and Materials, while being light in the high-performing Technology and Communication Services sectors compared to the broader index such as Russell 3000.

Despite employing an active strategy, DFAC remains remarkably efficient. Its portfolio turnover is just 4% annually, which is exceptionally low for an active fund, reflecting a patient buy-and-hold philosophy. This stability helps keep costs down and improves tax efficiency. In terms of expenses, its expense ratio is very competitive at 0.17%. With over $38 billion in assets under management, it is one of DFA’s flagship ETFs, demonstrating investor trust in its evidence-based approach.

Investment Strategy📊

DFAC is designed to be a core holding, potentially serving as the primary U.S. equity allocation in a diversified portfolio. Here’s how you might implement it:

• 🧭As a Core U.S. Equity Allocation: Replace or complement a total market ETF with DFAC to add factor tilts toward value, small-cap, and profitability.

• ⚖️Paired with Growth-Oriented ETFs: Since DFAC underweights technology, some investors balance it with a growth ETF for exposure to innovative mega-cap tech companies.

• 🧩Blended in a Multi-Factor Portfolio: Combine DFAC with other factor ETFs (momentum, quality, low volatility) for a diversified factor-based strategy.

• 🌎Global Diversification: Pair DFAC with international equity ETFs and fixed-income ETFs to build a globally balanced portfolio.

DFAC at a glance

ETF Issuer: Dimensional Fund Advisors

Inception: 2007-04-10 (listed as an ETF: 2021-06-14)

Asset Class: Equity

Underlying Index: DFAC is an active ETF

Geographical Focus: U.S.

Expense Ratio: 0.17% (as of last data point)

Dividend Yield: 1.00% (as of last data point)

Distribution Frequency: Quarterly

Historical Performance

Since its launch as an ETF in June 2021 (after converting from a mutual fund share class), DFAC has quickly gained traction, attracting billions in assets under management.

• 2022 (bear market): DFAC held up relatively well compared to growth-heavy benchmarks. Its tilt toward value and profitability softened the blow when tech stocks slid.

• 2023 (recovery year): While growth-focused funds like QQQ surged, DFAC posted more moderate gains, reflecting its underweight to mega-cap tech.

• 2024–2025 so far: DFAC has delivered competitive returns with lower valuation risk, offering a steadier ride than tech-heavy peers.

Over longer periods (using its mutual fund predecessor as a proxy), DFAC has delivered returns comparable to broad market indexes, but with different performance cycles—shining particularly in value-driven markets.

ETF Radar View

The radar chart below shows the general characteristics of the ETF:

Top 3 Reasons to Invest

1. Factor Exposure with Discipline: DFAC provides exposure to factors—value, small-cap, profitability—that academic research shows can enhance long-term returns. Unlike DIY factor investing, Dimensional applies this consistently and at scale.

2. Broad Diversification with a Purpose: You’re not just getting a random collection of small-value stocks. DFAC provides exposure to over 2,500 U.S. companies of all sizes, ensuring you remain broadly diversified while still capturing your desired factor tilts

3. Proven Manager: Dimensional Fund Advisors has decades of credibility and a strong institutional following. For investors, that’s reassurance that this isn’t a trendy product but a carefully managed strategy.

Top 3 Reasons Not to Invest

1. Underperformance in Growth Markets: When tech stocks dominate, DFAC may lag broad indexes like the S&P 500. Investors seeking high growth during tech booms might be disappointed.

2. Lower Momentum in Bull Runs: With low turnover and limited exposure to momentum-chasing, DFAC may not fully capture rapid surges in hot sectors.

3. Active Management Risks: Although grounded in research, DFAC’s active choices could lead it to diverge from market performance in unexpected ways. Some investors would prefer pure passive indexing.

🔍DFAC: Beyond the Index

DFAC is not your typical index tracker. By combining academic research with factor tilts and disciplined portfolio construction, DFAC offers a strong mix of broad diversification, strategic factor tilts, low costs, and high tax efficiency.

While it is not a guaranteed solution and may not outperform in every market environment, DFAC provides long-term investors with a solid, evidence-based approach to potentially enhance returns beyond a simple market-cap-weighted portfolio.

At ETF UNO, we believe that understanding ETFs, such as DFAC, equips investors with the knowledge needed to build smarter and more resilient portfolios. Stay tuned for more in-depth analyses, and if you haven't done so already, join the ETF UNO newsletter today for insights, breakdowns, and engaging perspectives on the ever-expanding ETF universe.

DISCLAIMER: This article is for informational purposes only and should not be considered as investment advice. Always conduct your own research and consult with a financial advisor before making investment decisions.