DFSV: Affordable, Actively Managed Small-Cap Value ETF Worth Watching

seekingalpha04-09

Dimensional US Small Cap Value ETF is a low-cost, actively managed small-cap value fund with a long history of beating its benchmark Russell 2000 Value Index. AUM is under $3 billion, far below some ...

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AUM is under $3 billion, far below some ...</p>\n\n<a href=\"https://seekingalpha.com/article/4682906-dfsv-affordable-actively-managed-small-cap-value-etf-worth-watching\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>DFSV: Affordable, Actively Managed Small-Cap Value ETF Worth Watching</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nDFSV: Affordable, Actively Managed Small-Cap Value ETF Worth Watching\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-09 23:13 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4682906-dfsv-affordable-actively-managed-small-cap-value-etf-worth-watching><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Dimensional US Small Cap Value ETF is a low-cost, actively managed small-cap value fund with a long history of beating its benchmark Russell 2000 Value Index. AUM is under $3 billion, far below some ...</p>\n\n<a href=\"https://seekingalpha.com/article/4682906-dfsv-affordable-actively-managed-small-cap-value-etf-worth-watching\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"DFLV","symbol_name":"DIMENSIONAL US LARGE CAP VALUE ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4682906-dfsv-affordable-actively-managed-small-cap-value-etf-worth-watching","article_id":"2426119490","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1256967959/image_1256967959.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2426119490","pubTimestamp":1712675631,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Dimensional US Small Cap Value ETF is a low-cost, actively managed small-cap value fund with a long history of beating its benchmark Russell 2000 Value Index. AUM is under $3 billion, far below some p","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"DFLV":"DIMENSIONAL US LARGE CAP VALUE ETF","DFVX":"US Large Cap Vector ETF","DCOR":"Dimensional US Core Equity 1 ETF","BK4588":"碎股","BK4550":"红杉资本持仓","DUHP":"Dimensional US High Profitability ETF","AVSC":"AVANTIS U.S. SMALL CAP EQUITY ETF","DFAC":"Dimensional U.S. Core Equity 2 ETF","DFAS":"Dimensional U.S. Small Cap ETF","DFSU":"DIMENSIONAL US SUSTAINABILITY CORE 1 ETF","IWN":"罗素2000价值股指数ETF-iShares","BK4585":"ETF&股票定投概念","DFAT":"Dimensional U.S. Targeted Value ETF","DFSV":"Dimensional US Small Cap Value ETF","AVUV":"Avantis U.S. Small Cap Value ETF","DFUS":"Dimensional U.S. Equity ETF","DFAU":"Dimensional US Core Equity Market ETF","FDN":"First Trust Dow Jones Internet I","DFUV":"DIMENSIONAL US MARKETWIDE VALUE ETF"},"translate_title":"DFSV：值得关注的负担得起、积极管理的小盘价值ETF","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DFAU":1,"IWN":1,"FDN":1,"DUHP":1,"DFVX":1,"DFUV":1,"DFUS":1,"DFSV":1,"DFSU":1,"DFLV":1,"AVSC":1,"DFAT":1,"DFAS":1,"DFAC":1,"DCOR":1,"AVUV":1},"content_text":"Dimensional US Small Cap Value ETF is a low-cost, actively managed small-cap value fund with a long history of beating its benchmark Russell 2000 Value Index. AUM is under $3 billion, far below some peers.On rolling five-year returns since August 2000, the DFSV ETF and its Institutional Class Fund outperformed 71% of the time, with the success rate gradually increasing as your holding period lengthens.This is good evidence the proprietary value strategy, which selects nearly 1,000 stocks with market caps as low as $14 million, works. However, other actively managed funds are doing well, too.DFAT leads DFSV by 7% over the last ten years, while AVUV leads by 41% over the last four years. This article compares the three fundamentally to see which one looks best today.   syahrir maulana Investment Thesis The Dimensional US Small Cap Value ETF (NYSEARCA:DFSV) portfolio managers have an impressive 24-year track record of outperforming the Russell 2000 Index (RTY). For an actively managed fund, its 0.31% expense ratio is reasonable, and investors gain access to a market segment that is not easy to assess.  However, DFSV is not the best in the category. As I will demonstrate below, there are at least two higher-quality, well-diversified options, and one of them also better emphasizes the value factor and has outperformed DFSV by 41% over the last four years. Therefore, a \"Hold\" rating is most appropriate, and I look forward to taking you through the reasons why in more detail below. DFSV Overview Strategy Discussion DFSV launched on February 24, 2022, and is benchmarked against the Russell 2000 Value Index. Through its Fact Sheet, Dimensional suggests three reasons to invest in DFSV, as follows: 1. Consistent, Value-Added Exposure: Managers use reliable information in prices to target higher expected return securities within value stocks and is implemented with a daily flexible process to maintain consistent exposure. 2. Flexible Information: A daily flexible process allows managers to maintain a consistent emphasis on higher expected returns securities. 3. Competitively Priced: DFSV is priced within the lowest quartile of Morningstar category peers. DFSV's prospectus reveals little information about its selection process. However, it indicates the portfolio starts with a market-cap-weighted approach and then \"emphasizes long-term drivers of expected returns identified by the Advisor's research, while balancing risk through broad diversification across companies and sectors.\" After evaluating the current portfolio's composition, I found this statement accurate. A company's size and weight in the portfolio have a 67% correlation, compared to 79% for the iShares Russell 2000 Value ETF (IWN). DFSV's 0.31% expense ratio is below average for the category, but it's not in the top quartile, at least when considering ETFs and not mutual funds. The expense ratio ranks #14/36 among the small-cap value ETFs I track, similar to other actively managed small-cap value funds, including:  Avantis US Small Cap Value ETF (AVUV): 0.25% Avantis US Small Cap Equity ETF (AVSC): 0.25% Dimensional U.S. Targeted Value ETF (DFAT): 0.28%  DFSV has $2.86 billion in assets under management, which is solid for a fund that's only two years old. However, it's still well behind AVUV and DFAT, which are quickly catching up to IWN's $12.21 billion figure.   Seeking Alpha Performance Analysis DFSV doesn't have much of a track record. However, the DFA U.S. Small Cap Value Portfolio Institutional Class Fund ((DFSVX)) launched on May 2, 1993. They're effectively the same fund with nearly identical risk and return characteristics since March 2022, as shown below:   Portfolio Visualizer With this information, I'm confident in using DFSVX to backfill results for DFSV. The chart below shows that it's delivered an annualized 10.38% return since August 2000 compared to 8.61% for IWN. Volatility was higher, but its risk-adjusted returns, as measured by the Sharpe Ratio, were still better.   Portfolio Visualizer These long-term charts can sometimes mislead, but here are some additional statistics that suggest DFSV's strategy is superior (DFSV vs. IWN):  1-Month Periods Outperformed: 162/285 (57%) 3-Month Periods Outperformed: 165/283 (58%) 6-Month Periods Outperformed: 165/280 (60%) 1-Year Periods Outperformed: 169/274 (62%) 3-Year Periods Outperformed: 157/250 (63%) 5-Year Periods Outperformed: 160/226 (71%).  As the holding period increases, so does DFSV's attractiveness. While DFSV did underperform IWN during bear markets like 2008 and 2018, this should not distract from the main objective, which is to increase one's chances of success. The 71% five-year success rate is substantial evidence that there's value in Dimensional's strategy. Other funds have impressive track records, too. Through March 2024, DFAT beats DFSV by about 7% over the last ten years, and AVUV outperformed by 41% in the previous four years. All three ETFs handily outperformed IWN over all periods listed below, so again, this is solid evidence that actively managed funds in the small-cap value space are good choices.   The Sunday Investor DFSV Analysis Sector Exposures The following table highlights the sector exposure differences between DFSV, DFAT, AVUV, and IWN. Notice the nearly identical 25% exposure to Financials, a sector known for its low price-book ratios, across all funds. Plenty of that exposure is in highly volatile Regional Banks. Therefore, one takeaway is that the small-cap value segment is risky. Unlike large-cap value stocks, which tend to be defensive, small-cap value stocks are sometimes more volatile than their growth counterparts.   Morningstar Interestingly, all three actively managed funds underweight Real Estate and Health Care, suggesting little value in these sectors. The offset is a higher weighting in Consumer Discretionary, which, along with Financials, adds to volatility. Again, small-cap value stocks aren't \"safe\" plays, and large drawdowns can occur. That's why a long-term mindset is required. Composition By Industry DFSV has 986 equity holdings. Therefore, a top ten holdings list is inadequate, comprising only 6.23% of the portfolio. Instead, consider this sub-industry look at DFSV along with the top three holdings in each. Here, we see DFSV's substantial overweighting of Regional Banks at 17.82%.   The Sunday Investor Next is Oil & Gas Exploration & Production at 5.56%, but sub-industry exposures are small after that. Worth noting is that the top ten holdings have an average market cap of $6.4 billion, but there are stocks with market caps as small as $14 million, and the weighted average market cap of DFSV is only $3.8 billion. DFSV Profitability Scores Dimensional provides profitability scores for each of its ETFs, defined as \"operating income before depreciation and amortization minus interest expense, scaled by book.\" As shown below, DFSV's score was 0.19 as of March 31, 2024.   Dimensional Profitability is a focus for Dimensional. However, DFSV's score is the lowest in their suite of ETFs:  US Core Equity 1 ETF (DCOR): 0.54 US Core Equity 2 ETF (DFAC): 0.52 US Core Equity Market ETF (DFAU): 0.56 US Equity ETF (DFUS): 0.56 US High Profitability (DUHP): 1.05 US Large Cap Value ETF (DFLV): 0.27 US Large Cap Vector ETF (DFVX): 0.48 US Marketwide Value ETF (DFUV): 0.25 US Small Cap ETF (DFAS): 0.27 US Small Cap Value ETF (DFSV): 0.19 US Sustainability Core 1 ETF (DFSU): 0.57 US Targeted Value ETF (DFAT): 0.21.  Based on Dimensional's measures for profitability, DFSV's score is the lowest. Therefore, I don't want to give the impression that it's a high-quality fund. When using Seeking Alpha Profitability Grades, DFSV's profitability score isn't even better than IWN's, and that's my main criticism. There are higher-quality alternatives, including DFAT and AVUV, so let's see how their fundamentals compare with DFSV next. DFSV Fundamentals By Sub-Industry The following table highlights selected fundamental metrics for DFSV's top 25 sub-industries, totaling 61.57% of the portfolio. This concentration level is similar to DFAT and IWN and about 10% better than AVUV.   The Sunday Investor Here are three observations to consider: 1. While DFSV's profitability gap with DFAT is minor, it's not with AVUV. AVUV's profit score is superior (6.01/10 vs. 5.48/10) and, except for its debt-equity ratio, is better than DFSV across the board, as follows:  Gross Profit Margin: 38.83% vs. 36.74% EBIT Margin: 16.84% vs. 13.07% EBITDA Margin: 24.66% vs. 20.93% Net Margin: 16.17% vs. 12.04% FCF Margin: 4.14% vs. 3.41% ROA: 6.48% vs. 3.67% ROE: 15.52% vs. 8.92% ROTC: 9.39% vs. 6.27% Asset Turnover: 0.94 vs. 0.82 Debt-Equity: 0.98 vs. 0.87 Current Ratio: 2.52 vs. 2.32 Quick Ratio: 1.51 vs. 1.43.  These metrics are relevant because DFSV and AVUV have similar weighted average market caps ($3.79 billion vs. $3.36 billion). They select from a similar universe of stocks, but AVUV emphasizes the quality factor better. 2. AVUV has a 1.38 five-year beta, the highest in this sample and the third highest among the 36 small-cap value ETFs I track. ETFs with similar betas include \"Pure Value\" funds like RZV and ISCV, so there's certainly a pattern between volatility and extreme value strategies like the one AVUV employs. In contrast, DFSV's 1.28 beta is only slightly above the average for the category, so that should serve shareholders well in down years. As additional support, DFSV outperformed RZV and ISCV in 2015, 2018, and 2022, the three down years in the past decade. If AVUV had been around long enough, it likely would have lagged DFSV in those years. 3. DFSV trades at 14.73x forward earnings using the simple weighted average method or 11.48x using the harmonic weighted average method, which you'll find on Morningstar. This calculation did not include approximately 7% of the portfolio's weight, as many stocks have negative earnings estimates. DFAT and AVUV are the same, so it's a fair comparison. In contrast, IWN's figure is 20%, so its 17.05x forward earnings valuation is understated. It is a nice example of how difficult it is to assess the valuation of poor-quality funds. One solution is to use the price-sales ratio, since nearly all stocks reported some revenue. On this metric, DFSV's 1.67x figure is about the same as AVUV's and far cheaper than IWN. Still, on price-cash flow, AVUV has a clear advantage over DFSV (7.75x vs. 10.58x). Given that AVUV also has a cheaper forward P/E, it seems to do a better job emphasizing the value factor, without giving up much earnings growth. Investment Recommendation This article demonstrated how DFSV substantially outperformed the Russell 2000 Value Index over the last 24 years. The managers' approach, which first emphasizes size and then adjusts weights based on proprietary factors purported to drive long-term returns, appears to work. DFSV outperformed IWN 71% of the time on rolling five-year returns since August 2000, and the success rate gets better as you lengthen your holding period.  I found only minor performance and fundamental differences between DFSV and DFAT, so I don't see the need to hold both. However, there was a substantial difference in profitability between Dimensional US Small Cap Value ETF and AVUV, and all things equal, I prefer the latter. AVUV also has better value characteristics and has outperformed DFSV since its inception, with high volatility as its main weakness. Therefore, given this alternative, I've rated DFSV a \"Hold,\" and I look forward to answering any questions you may have in the comments section below. 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