NZ investors have seeded the new Dimensional Fund Advisors (DFA) Australian equities fund with about $20 million, taking the ‘systematic’ manager’s own brand PIE assets close to $500 million.
The Australian fund assets add to the $450 million DFA has accrued in its two Global Sustainability PIEs (hedged and unhedged versions) since launching the NZ tax-efficient vehicles in June last year.
Bhanu Singh, DFA Australia chief, said the new PIE complements the global share funds, which exclude Australian stocks.
Singh said NZ advisers were now able to build tax-efficient DFA portfolios covering the wider investment universe, rather than splitting exposure between PIEs and Australian unit trusts.
“While some Kiwi clients are happy to continue investing through our Australian resident unit trusts, others have said the PIEs make more sense from an administration and tax perspective,” he said in a release. “Ultimately, we want to give intermediaries choice in how they access our investment expertise.”
DFA moved into PIE production – offered under the auspices of hosting firm, FundRock NZ (previously, Implemented Investment Solutions) – after requests from advisers this side of the Tasman, Singh said.
“We are driven by client demand,” he said.
But as DFA racks up PIE assets under its own name, the firm also acts as underlying manager for the almost $100 million Smartshares NZ Core Equity Trust as well as Booster KiwiSaver Asset Class funds, advised on by Hastings advisory business, Stewart Group. Earlier this year the Stewart Group launched a retail suite of DFA-backed products under the ACI Funds label.
Most of the PIE growth to date has come as NZ advisers switch out of DFA Australian unit trusts (AUTs) but Singh said perhaps up to $60 million was new money.
At the same time, NZ investors still have significant – if difficult to pin down – exposure to DFA via the traditional Australia-domiciled funds.
The US-based manager boasts over $1 trillion under management globally and more than $40 billion sourced from Australasia – possibly $6 billion or more comes from NZ investors based on back-of-the-envelope estimates.
Founded in 1981, the DFA investment philosophy follows capital market asset-pricing principles established by Eugene Fama and Ken French, who initially identified size and value as persistent sources of alpha.
The factor model has evolved over time with ‘profitability’ the most significant update to the DFA stock selection process, according to Singh.
He said the profitability factor opens up some large growth stocks – that might have previously been down-sized on size grounds – to a higher weight in portfolios that have historically tilted to value.
However, Singh said investors also benefit from efficient implementation of the quant-based strategies including trading systems that allow the manager to “turn on and turn off” exposures to momentum trends or even information gleaned from DFA stock-lending programs, for example.
The manager, too, takes a pragmatic rather than a dogmatic view on sustainability.
“We say there are four promises that managers typically make about sustainability, but only one can be fulfilled. Higher returns (no evidence),” a DFA Australia spokesperson said. “Lower risk (it’s already in the price). Change the world (you’re buying in the secondary market). Match your values (yes, we can do that). But you can have a strategy that delivers similar returns to what you would get in a non-sustainable strategy, but one you feel you can live with.”
For example, Singh – who doubles as DFA head of portfolio management for Asia-Pacific – said the Australian sustainable equities fund has a carbon intensity measure of about 45-50 per cent lower than the broader index while the Global Sustainability strategy has an emissions reading of up to 70 per cent under the benchmark.
He said balancing investment outcomes and sustainability goals is more precarious in the less-diversified, energy-heavy Australian share market compared to the global stock universe.
“We wouldn’t want to push the [carbon emission] levels to the point where we jeopardise investment outcomes.”
The DFA Australian PIE features a management fee of 0.35 per cent compared to 0.41 per cent for the global products.
DFA has also moved with product structure trends in other jurisdictions, launching a suite of exchange-traded funds (ETFs) late in 2020 that have since grown to more than US$100 billion – making it the largest actively managed ETF provider. The group has plans to launch an Australian ETF range this year.
Singh took over as DFA Australia chief in May this year from long-time incumbent, Glenn Crane, who moved to the executive chair role.