DFIV: When Value, Growth And Yield Come Together

seekingalpha03-27

Dimensional International Value ETF is an actively managed fund investing in companies with value characteristics outside the U.S.The portfolio is well-diversified across holdings, but quite heavy in ...

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Reviews with updated data are posted when necessary. DFIV strategy Dimensional International Value ETF (NYSEARCA:DFIV) is an actively managed fund launched on 04/16/1999 and listed as an exchange-traded fund, or ETF, on 09/13/2021. DFIV has $7.1B of assets under management, a portfolio of 547 stocks, and a net expense ratio of 0.27%. With a dividend yield of 3.56%, it may be classified in both “value” and “dividend” ETF categories. Distributions are paid quarterly. As described in the prospectus by Dimensional, the fund: “may overweight certain stocks, including smaller companies, lower relative price stocks, and/or higher profitability stocks within the large-cap value segment of developed ex U.S. markets. An equity issuer is considered to have a low relative price (i.e., a value stock) primarily because it has a low price in relation to its book value. In assessing relative price, the Advisor may consider additional factors such as price to cash flow or price to earnings ratios. An equity issuer is considered to have high profitability because it has high earnings or profits from operations in relation to its book value or assets. The criteria the Advisor uses for assessing relative price and profitability are subject to change from time to time.” Like for all actively managed ETFs, the strategy description allows a lot of flexibility in the investing process. On the downside, it is less transparent than for index-based funds. In the most recent fiscal year, the portfolio turnover rate was 12%, which is very low for an actively managed fund. This article will use as a benchmark iShares Core MSCI Total International Stock ETF (IXUS), which tracks a broad ex-US equity index. DFIV portfolio Europe is the heaviest region, with about 56% of asset value (vs. about 40% for IXUS). The top two countries are Japan and the UK in both funds, and they are heavier in DFIV (22.4% and 12.3%, respectively). The main difference is that DFIV ignores countries classified as developing markets like China, India, Taiwan and South Korea. Country allocation (chart: author: data: Dimensional, iShares) Financials are the heaviest sector in both DFIV (28.4%) and IXUS (20%). Compared to the benchmark, the actively managed fund overweights mostly financials, energy and materials. It massively underweights information technology.   Sector breakdown (chart: author: data: Dimensional, iShares) The top 10 holdings, listed below, represent 16.6% of assets and the heaviest one weighs less than 4%. Therefore, the portfolio is well-diversified and risks related to individual companies are low.   name weight ticker isin   SHELL PLC 3.60% SHEL US US7802593050   TOTALENERGIES SE 3.11% TTE FP FR0000120271   NOVARTIS AG ADR 1.42% NVS US US66987V1098   TOYOTA MOTOR CORP 1.34% 7203 JP JP3633400001   Mercedes-Benz Group AG 1.29% MBG GR DE0007100000   ZURICH INSURANCE GROUP AG 1.27% ZURN SW CH0011075394   HSBC HOLDINGS PLC 1.27% HSBC US US4042804066   CIE DE SAINT-GOBAIN 1.15% SGO FP FR0000125007   MITSUBISHI CORP 1.09% 8058 JP JP3898400001   SANOFI 1.08% SAN FP FR0000120578   Click to enlarge Fundamentals As anticipated for a value fund, DFIV is materially cheaper than the benchmark regarding aggregate valuation ratios (reported below).     DFIV IXUS   Price/Earnings TTM 9.74 13.23   Price/Book 1.02 1.59   Price/Sales 0.77 1.23   Price/Cash Flow 5.44 8.69   Click to enlarge Source: Fidelity. Quite unexpectedly, it is also better regarding growth metrics. The next table reports trailing 12-month growth rates.     DFIV IXUS   Earnings growth % 22.43% 16.52%   Sales growth % 8.63% 8.59%   Cash flow growth % 13.94% 7.88%   Click to enlarge Source: Fidelity. Performance Since DFIV listing in September 2021, the fund has outperformed IXUS by over 22% in total return. However, price history is too short to assess the long-term potential of the strategy. DFIV vs IXUS since inception (Seeking Alpha) Additionally, the annual sum of distributions has increased from $1.17 to $1.35 per share between 2022 and 2023 (+15.4%), which is promising from a dividend growth perspective. Competitors The next table compares characteristics of DFIV and four international value ETFs:  iShares MSCI EAFE Value ETF (EFV) Avantis International Small Cap Value ETF (AVDV) Avantis International Large Cap Value ETF (AVIV) Alpha Architect International Quantitative Value ETF (IVAL).      DFIV EFV AVDV AVIV IVAL   Inception 4/16/1999 8/1/2005 9/24/2019 9/29/2021 12/16/2014   Expense Ratio 0.27% 0.34% 0.36% 0.25% 0.39%   AUM $7.05B $17.25B $5.54B $346.72M $156.38M   Avg Daily Volume $22.34M $143.26M $17.69M $1.27M $503.25K   Holdings 547 494 1336 528 56   Top 10 16.60% 17.43% 8.26% 17.74% 21.50%   Turnover 12.00% 22.00% 14.00% 21.00% 74.00%   Yield TTM 3.56% 4.21% 3.16% 3.49% 5.35%   Click to enlarge DFIV has the lowest turnover and is second in size, liquidity and fee. The next chart plots total returns, starting on 10/4/2021 to match historical data availability. DFIV is the best performer. It is second to IVAL in 2024 to date, as reported on the second chart below. DFIV vs competitors since 10/4/2021 (Seeking Alpha) DFIV vs competitors year-to-date (Seeking Alpha) Takeaway Dimensional International Value ETF is an actively managed fund investing in companies with value characteristics outside the U.S. It has nearly 25 years of existence, but only 2.5 years of historical data as an ETF. The portfolio is well-diversified across holdings, but quite heavy in Japanese companies and in financials. Not only valuation, but also growth metrics look better than an international benchmark. Moreover, it is ahead of the benchmark and competitors regarding total return since 2021. All these characteristics, associated with a 3%+ yield, make DFIV an attractive investment for value-oriented investors seeking international diversification. However, Dimensional International Value ETF has three minor shortcomings: a lack of transparency, the weight of financials, and a short data history as an ETF.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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