You are correct that if you change the data collection retention that you will reduce the perfdata folder size. This can be changed in performance monitor per filer and per counter. If you look under "Data Collection" you will see what the current retention for each node and counter currently is.
Be aware also that if you have less than 10% available space where your perfdata folder is stored, that DFM will stop data collection.
Re: DFM perfdata expands. How to decrease the perfdata size?