Dimensional Cuts SMA Floor to $500,000 as Indexing Rivalry Grows
(Bloomberg) -- The hurdle to access Dimensional Fund Advisors’s lineup of separately managed accounts just got a lot lower.
The Austin, Texas-based quant giant slashed the account minimum to just $500,000, according to a statement Monday. That’s down from the typical threshold of more than $20 million for Dimensional SMAs, bespoke portfolios normally tailored to wealthy individuals.
Demand from financial advisers for an expanded SMA offering was the driving force behind lowering the account minimum under a revamp that took roughly 18 months to complete, according to Dimensional’s Savina Rizova. Ease of access has been a growing theme for the $660 billion asset manager, which has quickly become one of the largest issuers in the $6.8 trillion exchange-traded fund business after launching its first products in 2020.
“The motivation here has been to meet growing demand for personalization -- more personalized phones to more personalized investment solutions -- and we’ve heard that in our conversations with advisers multiple times in recent years,” Rizova, Dimensional’s head of research, said in an interview.
The Dimensional SMA lineup charges a fee of 29 basis points for an offering that can hold anywhere from 700 to 1,400 securities on average. While a portfolio of that size is “unusual,” major custodians typically don’t charge trading fees and the portfolios tend to see low holdings turnover, Rizova said.
The industry around SMAs and custom indexing is growing increasingly competitive as demand booms. Morgan Stanley spent $7 billion on Eaton Vance Corp. last year, largely because the latter owns Parametric Portfolio Associates -- one of the heavyweights in direct indexing. That was quickly followed by BlackRock Inc.’s $1 billion purchase of Aperio, a creator of tailored index strategies.
Potential tax changes may provide another tailwind for do-it-yourself indexing and SMAs. Draft legislation released by Senate Finance Committee Chairman Ron Wyden of Oregon would claw back a key tax advantage for ETFs, ending a system of deferred taxes on capital gains.
“We don’t know what’s going to happen with the tax rate uncertainty, but having flexibility to take different actions depending on how tax rates evolve is going to be extremely valuable and this offering allows you to do that,” Rizova said.
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