Dimensional Emerging Markets Value ETF (DFEV)

The Dimensional Emerging Markets Value ETF (DFEV) buys shares of companies in developing countries that are trading cheaply. It is based on a simple idea: when stocks are unpopular and cheap, they often deliver better returns later. This fund holds the unfashionable parts of emerging-market investing.

What “cheap” means in this context

When DFEV says it buys cheap stocks, it uses real measures. A cheap stock is one that pays a high dividend relative to its price, or trades at a low price compared to its book value (the accounting value of its assets). By these measures, the fund filters the universe of emerging-market companies and overweights those that are out of favor.

The logic is old but sensible. Money flows to popular stories—exciting growth companies, tech firms, winners of the moment. Unpopular companies—old industrial firms, lagging banks, companies in industries people ignore—get pushed down in price. When a stock is beaten down, it starts to offer better value. If the company is solid and the troubles are temporary, buying now and waiting means the price will eventually recover, and the buyer wins.

Why emerging markets for value investing

Emerging markets are where this strategy shows up most clearly. Developed-country stocks are followed constantly by hundreds of analysts. Information travels fast. It is harder to find a truly cheap, overlooked stock in the U.S. or Europe.

In emerging markets, the story is different. There are fewer analysts. There is less media coverage. International investors—especially American investors—ignore entire countries and industries because they seem too risky or too boring to study. That creates gaps. A good company in Brazil or Poland can fall through the cracks. DFEV is built to catch those cracks.

The challenge: patience is not rewarded smoothly

Value investing sounds reasonable in theory. Buy cheap, wait for the recovery, sell high. In practice, it requires patience that tests most people.

There are long periods—sometimes five years or more—when cheap stocks do not recover. They stay cheap. They get cheaper. In the meantime, expensive, popular stocks keep rising. An investor in DFEV watches their money stagnate while a friend in a growth-focused fund brags about 20% annual returns. This is called relative underperformance, and it hurts psychologically.

Dimensional, the fund’s sponsor, believes the long-term evidence supports value, especially in emerging markets. Studies dating back decades show that cheap stocks have delivered higher returns over rolling 10-year and 20-year periods. But the strategy is not smooth. There are stretches—even decades in some markets—where value lags.

Emerging-market risks are still there

DFEV does not protect you from the core risks of emerging-market investing. Countries can face currency crises. Governments can change rules suddenly. A popular, valuable company can face political pressure or expropriation. When emerging markets sell off globally, DFEV falls along with them.

The value tilt can actually amplify the pain. Value stocks are typically in older, less dynamic industries or firms in slower-growing countries. When risk appetite drops, investors flee not just to safety but away from anything cyclical or economically sensitive. Cheap value stocks in emerging markets are exactly that. So in a crisis, DFEV can fall more sharply than a plain emerging-market fund.

A fund for patient, disciplined investors

DFEV is not for people who want excitement or quick returns. It is for investors who believe two things. First, that cheap stocks outperform over decades. Second, that they can hold on through long stretches of underperformance without panic-selling.

If you think emerging-market growth is attractive and you have the stomach to own unfashionable companies for years while more popular stocks rise, DFEV is a simple, low-cost way to capture that bet. If you get antsy when a fund trails its benchmark for two years, or if you need the money within five years, the value tilt will probably frustrate you.

How to track DFEV

Check the fund’s holdings once a year. Do they look like the kinds of cheap, unfashionable companies the strategy aims for? Compare DFEV’s returns to a regular emerging-markets index over rolling 10-year periods; that is the time frame where the value premium should show up. Finally, read Dimensional’s research on the value premium in emerging markets. Understanding the theory will help you stay the course during the inevitable periods when it does not work.