The U.S. Securities and Exchange Commission (SEC) has officially approved Dimensional Fund Advisors (DFA) to launch exchange-traded fund (ETF) share classes on 13 of its existing mutual funds. This decision, announced on the SEC website on November 18, 2025, marks a significant milestone in the evolution of the U.S. ETF market.

The approval removes the last regulatory hurdle for DFA in its attempt to become the first new asset manager to offer ETF share classes of existing mutual funds in more than two decades. It also sets the stage for potential approval of similar applications by other fund managers seeking to capitalize on the growing ETF market.

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Background: The ETF Share Class Innovation

Vanguard, the only asset manager to previously offer ETF share classes alongside mutual fund share classes, held a 20-year patent on the product, which expired in 2023. Shortly after the expiration, DFA submitted its SEC application for preliminary approval in September 2025.

This approval allows DFA to provide investors with ETF share class options for 13 of its existing mutual funds. However, insiders suggest that DFA is unlikely to launch all 13 funds at once, with the first ETF share classes potentially debuting in early 2026.

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Benefits for Investors

Eric Pan, president and chairman of the Investment Company Institute, emphasized that this move will deliver “meaningful benefits to mutual fund shareholders.” The new ETF share classes could offer:

• Lower costs: By pooling operating and distribution expenses, ETF share classes can reduce overall fees for investors.
• Tax efficiency: ETFs generally allow for in-kind redemptions, potentially reducing capital gains taxes compared to traditional mutual funds.
• Greater flexibility: Share classes enable investors to choose the investment strategy that aligns with their goals and then select the preferred wrapper—mutual fund or ETF—based on cost, convenience, or tax considerations.

Gerard O’Reilly, co-CEO and co-CIO of DFA, explained:
“Share classes allow investors to choose the investment strategy that best suits their needs as a first-order consideration, and then select their ideal wrapper to access that strategy.”

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Implications for the ETF Market

The approval signals a growing trend in the asset management industry to convert existing mutual funds into ETFs or offer ETF equivalents. Analysts predict that this could lead to increased competition, potentially driving down costs and expanding access to tax-efficient investment products.

The move also comes amid rising interest in specialized ETFs, including those offering exposure to private credit, international equities, and sustainable investments. By offering ETF share classes, DFA is positioning itself to tap into these high-demand segments while providing existing investors with new, more efficient ways to access its products.

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Looking Ahead

Investors and industry observers will closely monitor DFA’s rollout of ETF share classes. While the initial launches may be limited, the approval could pave the way for dozens of similar conversions across the asset management industry, revolutionizing how mutual funds are accessed and traded.

With the growing popularity of ETFs for both retail and institutional investors, DFA’s move underscores a broader shift in investment strategies toward low-cost, flexible, and tax-efficient products.