⚖️Balancing Risk and Reward: DFAT's Methodical Value Approach

Hello ETF investors! Many investors may consider themselves "value investors" no matter what they invest in. But today we'll look at an ETF truly tailored for those seeking exposure to American value stocks - the US Targeted Value ETF (DFAT).

While the idea of "value" can be subjective, DFAT homes in on U.S. stocks exhibiting specific value characteristics based on metrics like cash flow, dividends, and valuation multiples. For those with a disciplined value approach focused on the U.S. market, DFAT aims to unlock the potential of this corner of the market and deserves a close look.

Read on to see if adding dedicated U.S. value stock exposure through DFAT could be a fit for your portfolio!

What is DFAT?

DFAT is crafted to track an index that zeroes in on U.S. companies displaying a suite of value traits such as low valuations relative to fundamentals. It screens and selects companies based on multiple value metrics, including price-to-earnings, price-to-book ratios, and other financial health indicators.

The result is a compilation of U.S. firms that are not just undervalued by market standards but also demonstrate strong financials and the potential for rebound or growth. DFAT is diversified across industries, offering investors a broad exposure to potential value opportunities from across the American equity market landscape.

🧮 The Factor Investing Pioneers - Dimensional Fund Advisors

Dimensional Fund Advisors (DFA) is a global investment management firm that specializes in factor investing. Factor investing is a systematic approach to investing that seeks to capture excess returns by exploiting known market inefficiencies. DFA was founded in 1981 by the pioneers in the field of factor investing.

DFA's investment process is based on the following principles:

• 🔬Select factors with robust academic support

• 💡Use systematic, emotion-free implementation

• 📊Build diversified portfolios to manage risk

Today, DFA manages over $500 billion in assets across its mutual funds and ETFs seeking to harness factor premiums. For advisors and investors alike, DFA provides disciplined, research-based access to historically-rewarded factors. Its reputation as a true legend of factor investing, grounded in decades of innovation and performance, is certainly well-earned. With its intellectual pedigree and systematic approach, Dimensional Fund Advisors remains a leader in empirically-based investing.

The Appeal of Value in Volatile Markets 🏹

In volatile markets, many investors turn to value stocks, which offer stability and the potential for long-term growth. Value stocks are typically mature, well-established companies that are trading at a discount to their intrinsic value. They can provide a bulwark against market volatility and serve as a counterbalance to growth-oriented investments in a well-rounded portfolio.

Value investing is like hunting for diamonds in the rough: finding high-quality assets at a discount. In volatile markets, where investors are looking to manage risk while pursuing growth, DFAT can be a valuable tool in your investment arsenal.

DFAT at a glance

Asset Class: Equity

Underlying Index: DFAT is an ETF actively manged by DFA

Geographical Focus: U.S.

Sector Focus: All major sectors: but Financials, Industrials, and Consumer Discretionary alone comprise over 50% of its portfolio

Expense Ratio: 0.28% (as of last data point)

Dividend Yield: 1.50% (as of last data point)

Distribution Frequency: Quarterly

Historical Performance

Prior to becoming an ETF in 2021, DFAT operated as an index-based mutual fund for over 10 years. This long track record demonstrates the viability of DFAT's value investing strategy.

Over the 10-year period from 2013-2022, including time of running as a mutual fund, DFAT generated an average annual return of over 10%. This impressive historical performance shows DFAT's ability to consistently deliver solid returns through its focused value approach.

By converting the successful DFAT mutual fund into an ETF structure, investors now have an efficient vehicle to access the same value stock strategy that produced over a decade of strong returns. DFAT brings a proven value investing methodology to the ETF landscape.

ETF Radar View

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

Top 3 Reasons to Invest in DFAT

1. Focused Value Exposure: DFAT is a targeted ETF that provides exposure to U.S. companies considered to be undervalued, which may lead to potential appreciation as market conditions evolve.

2. Seasoned Strategy: DFAT draws on over 10 years of live performance as a mutual fund employing the same methodology.

3. Strategic Stock Selection: DFAT employs a methodical selection process that scrutinizes each stock for value characteristics, aiming to include only those with the most promising financials and valuation metrics.

Top 3 Reasons Not to Invest in DFAT

1. Limited Historical Data: While established as a mutual fund, DFAT has limited history as an ETF. Its efficiency as an ETF is still unproven.

2. Value Trap Risk: Investing in value stocks comes with the risk of value traps—stocks that appear undervalued may remain so for prolonged periods or deteriorate.

3. Market Timing Challenges: Value investing often requires a long-term horizon and the ability to withstand periods where growth stocks may outperform value stocks.

DFAT: Finding the Hiding Diamond?💎

DFAT is a good option for investors who are looking for a value-oriented ETF that can provide them with exposure to the U.S. stock market and dividend income. DFAT is also a good option for investors who have a long-term investment horizon.

While it's not the sole option out there, for those who are poised to embrace the value investing paradigm, DFAT might just be the key to unlocking investment opportunities. Happy investing, and may DFAT help steer your portfolio toward its desired destination!

DISCLAIMER: This newsletter is for educational purposes only and does not constitute financial advice.