The Dimensional International Core Equity Market ETF (NYSEARCA:DFAI) has reported a remarkable increase of 31% over the past year, coupled with a dividend rise of 17.5% to reach $0.93 per share. This surge reflects a significant shift in international equity markets, particularly as developed markets outside the United States begin to gain traction after years of underperformance.
DFAI focuses heavily on Canadian financial and energy sectors, with nearly 30% of its assets concentrated in these industries. This emphasis on concentrated holdings raises questions about potential risks linked to commodity fluctuations and regional economic performance. In contrast, the Vanguard FTSE Developed Markets ETF (NYSEARCA:VEA) offers a similar investment profile at a notably lower expense ratio of 0.03%, compared to DFAI’s 0.18%.
Understanding DFAI’s Portfolio Approach
DFAI serves as a core international equity option for investors seeking exposure beyond the U.S. market. Rather than simply tracking market-cap weights like many passive funds, Dimensional employs a disciplined factor-based strategy that favours smaller-cap stocks, value characteristics, and companies with higher profitability.
With holdings exceeding 3,800 securities, the fund maintains a diversified portfolio where its largest position, ASML Holding, accounts for less than 1%. This diversification strategy helps mitigate single-stock risks, while the targeted factor tilts aim to enhance expected long-term returns.
In the fiscal year of 2025, DFAI’s dividend distribution of $0.93 per share added approximately 3% to total returns, supplementing the impressive 31% price appreciation. The fund’s geographical exposure leans heavily towards Canada, where six of its top ten holdings consist of Canadian banks and energy firms, alongside notable European companies such as Novartis and Banco Bilbao Vizcaya.
Performance Analysis and Future Outlook
While DFAI’s 31% gain was slightly behind the Vanguard FTSE Developed Markets ETF’s return of 36%, it exceeded the performance of the iShares MSCI EAFE ETF, which recorded a 32% increase in the same timeframe. Over a five-year span, DFAI has delivered total returns of 66%, compared to 58% for VEA, suggesting that its factor tilts may provide long-term advantages.
From April to June, DFAI surged by 12.3% and followed up with an additional 4.7% gain in August, indicating that its recent performance is likely influenced by specific market catalysts, including strength in the semiconductor sector and an ongoing economic recovery in Europe.
Looking ahead to 2026, major investment firms express optimism regarding international equities. According to J.P. Morgan Global Research, double-digit growth is anticipated for developed markets, driven by narrowing earnings growth disparities between U.S. and international companies, along with a weaker dollar. Furthermore, BlackRock identifies Europe and Japan as promising markets not solely reliant on the technology sector’s momentum.
Nevertheless, the heavy concentration in Canadian assets poses risks. The reliance on six prominent Canadian banks and energy firms exposes DFAI to fluctuations in commodity prices and the overall health of the Canadian economy. If growth stocks and larger capitalizations continue to dominate the market, the fund’s focus on value and smaller-cap stocks may underperform.
Investors considering DFAI should be aware that factor investing requires patience. The tilts towards value and profitability may not yield immediate results, particularly during periods when growth stocks outperform. Additionally, there is inherent currency risk associated with international holdings, as a strengthening U.S. dollar could dampen returns for American investors, despite potential gains in foreign markets.
For those seeking a simpler investment alternative, VEA presents a viable option. Its 0.03% expense ratio is significantly lower than DFAI’s, and it boasts superior liquidity with assets totaling $115 billion. While VEA does not incorporate factor tilts, its market-cap weighted approach aligns well with investors looking for straightforward international diversification without the complexities of targeted investment strategies.
As 2026 approaches, DFAI remains an attractive choice for patient investors who believe in the merits of factor investing. However, individuals should carefully monitor the fund’s heavy Canadian exposure and factor concentration as market conditions evolve.
