The US’s largest issuer of actively managed exchange traded funds is set to launch its first ETFs in Europe, in a move that will widen the choices for UK retail investors.
Texas-based Dimensional Fund Advisors will unveil a core developed markets ETF and a small and mid-cap value fund, both listed in London and Frankfurt, before the end of the year.
The move by Dimensional, which runs $206bn of actively managed ETFs in the US — more than $1 in every $6 invested in the sector, according to Morningstar data — will broaden access to retail investors as its mutual funds, which hold $64bn of assets in continental Europe and the UK, are sold to independent financial advisers, wealth managers and institutions.
Active ETFs differ from passive ETFs as they use a portfolio manager or advanced models to make deliberate investment decisions. Passive ETFs are a basket of investments, usually made up of shares or bonds that track a particular index, such as the FTSE 100.
“What we have seen now in Europe is that there has been a lot of growth and acceptance of ETFs in certain markets, especially Germany, and many of the clients we work with would like to work with us using ETFs,” said Gerard O’Reilly, co-chief executive and co-chief investment officer of Dimensional, which has $853bn of assets under management.
He added that further European ETF launches were lined up for 2026, possibly as separate share classes of its existing mutual funds.
“There is a bit of a ‘cultiness’ around them, a bit like Vanguard,” said Kenneth Lamont, principal of research at financial services group Morningstar. “They have an ecosystem. You buy into their world. They are maybe the Apple of the fund management universe.”
Lamont’s one criticism was that they have been late in entering Europe’s $75bn active ETF market, where 37 managers already run 222 ETFs, according to ETFbook data.
Elisabeth Kashner, director of global fund analytics at FactSet, added: “Dimensional has been super competitive on pricing, to the point where they are often the low-price leader among active ETFs, similar to the role that Vanguard plays among passive ETFs.”
Her research suggests most of Dimensional’s US ETFs are among the cheapest 10 per cent of active funds in their sectors.
The annual management charges for its first European ETFs are expected to be about 0.22 per cent for the core fund and 0.4 per cent for the mid- and small-cap vehicle.
Dimensional has gained something of a cult following for its distinctive take on investing, based on Nobel Prize-winning research spun out of the University of Chicago.
Its investment thesis is based on the work of Eugene Fama, the economist most closely associated with the efficient market hypothesis — which states that all publicly available information is already factored into a stock’s price. Fama still sits on Dimensional’s advisory board.
While the efficient market hypothesis would seem to argue against the utility of active investing, Fama and Dimensional’s view is that some equities, such as small-caps and value stocks, are higher risk than others and therefore should exhibit stronger returns over time.
Dimensional says it combines this belief with a pragmatic approach to trading, buying and selling stocks when its traders deem market conditions to be right, minimising transaction costs.