Price wars and competition have come to international ETFs.
ETFs investing exclusively outside the U.S. have drawn $50 billion of net inflows since the end of the third quarter of 2022, including $20 billion in January alone, according to FactSet Research Systems Inc. And while market leaders Vanguard Group and BlackRock Inc. maintain nine of the 10-largest international equity ETFs, the industry stalwarts are finally facing some competition.
Issuers such as Dimensional Fund Advisors L.P., American Century Investments Inc., and JP Morgan Asset Management Inc., are winning clients through a combination of brand, reputation, and business model. Price and performance are a prerequisite in the hyper-competitive ETF market.
"The international equity ETF market has become crowded," said Elisabeth Kashner, vice president and director of global fund analytics with FactSet, "but ETF newcomers DFA and Avantis Investors from American Century have captured investors' attention by offering actively managed core exposure at a competitive price point."
Since the end of the third quarter, DFA's 13 non-U.S. equity ETFs have added $5.2 billion in net inflows to close January at $22.7 billion in total assets, according to data provided by FactSet. DFA entered the ETF market in late 2020 and has added to its equity and fixed-income offerings through a combination of new launches and mutual fund conversions. Two of its seven mutual fund to ETF conversions invest outside the U.S. — the $5.4 billion World ex-US Core Equity 2 ETF and the $4.9 billion International Value ETF.
"Our investing track record means a lot," said Karen Umland, senior investment director and vice president for DFA in Santa Monica, Calif. "But when it comes to international and emerging markets, clients still want to know about the portfolios and processes — including the factors driving returns and how we are navigating macroeconomic events and geopolitics within the portfolio."
DFA's actively managed international ETFs are also price competitive, with net expense ratios of between 0.18% and 0.43%. Avantis Investors, with former DFA co-CEO and CIO Eduardo Repetto serving as CIO, markets its international offerings with net expense ratios from 0.23% to 0.36%.
DFA (and Avantis) ETFs are priced similar to DFA's active mutual funds, which themselves are well below the 0.6% asset-weighted average expense ratio for world equity funds, according to a 2022 Investment Company Institute report.
Comparatively, the asset weighted average expense ratio for indexed world equity ETFs was 0.24% and for all active equity ETFs it was 0.48%.