Avantis ETFS vs Vanguard and Other Active Funds

Avantis ETFs offer a low-cost alternative to traditional active funds, with fees as low as 0.05% for some portfolios. This is significantly lower than the average active fund, which charges around 1.3% in fees.

Avantis ETFs also provide access to a range of asset classes, including US and international equity, bonds, and real assets. This allows investors to diversify their portfolios and potentially reduce risk.

One key advantage of Avantis ETFs is their ability to tap into the expertise of seasoned investors, such as Eduardo Repetto, who brings over 20 years of investment experience to the table. This expertise is reflected in the funds' performance, with some portfolios outperforming their benchmarks by a wide margin.

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Avantis ETFs employ a range of principal investment strategies to achieve their investment objectives.

They focus on delivering cost-effective, high-quality portfolio management.

Avantis uses a proprietary investment approach that combines quantitative and qualitative research to identify high-quality companies.

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This approach is designed to identify companies with strong financial health, competitive advantages, and growth potential.

The Avantis team conducts extensive research on each potential investment, considering factors such as valuation, management quality, and industry trends.

Their research-driven approach helps them to identify undervalued companies with strong growth prospects.

Avantis ETFs have a low cost structure, which enables them to pass the savings on to investors.

This focus on cost-effectiveness allows Avantis to offer competitive pricing for their ETFs.

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The Avantis US Small Cap Value ETF has a diverse portfolio with 679 total holdings. This spread is likely to provide a stable foundation for investors.

The top 10 positions in the ETF are dominated by Industrials and Consumer Discretionary holdings, making up a total of 8 positions. This indicates a focus on these sectors.

Materials and Information Technology each have one holding in the top 10, rounding out the diversity of the portfolio.

The top position, Triton International, holds only 0.97% weight in the fund. This means that the fund is not heavily concentrated in any one stock.

Here are the sectors represented in the top 10 holdings:

The AQR Research Factors provide valuable insights into the performance of Avantis ETFs.

AVUV, a popular Avantis ETF, has shown dominant factor exposure to size, value, and quality.

In comparison to VBR ETF, AVUV offers stronger factor exposure to size, value, and quality, with AVUV's size factor exposure being nearly twice as strong as VBR's.

The Quality (QMJ) factor results also favor AVUV, with AVUV's quality factor exposure being significantly stronger than VBR's and slightly stronger than SPY's.

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The Avantis U.S. Small Cap Value ETF (AVUV) has consistently outperformed its competition, with a CAGR of 14.76% since its inception in late 2019. This is significantly higher than the CAGR of 8.84% for Vanguard Small-Cap Value ETF (VBR) and 7.84% for iShares Core S&P Small-Cap ETF (IJR).

AVUV has also been more defensive in its worst year, with a loss of only 4.90% compared to VBR's loss of 9.36% and IJR's loss of 16.19%. This suggests that AVUV is a more stable investment option.

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AVUV's Sharpe Ratio and Sortino Ratio are also higher than those of VBR and IJR, indicating that it has provided higher risk-adjusted returns. With a Sharpe Ratio of 0.58 and a Sortino Ratio of 0.85, AVUV has outperformed its competitors in terms of risk-adjusted returns.

AVUV has a market correlation of 0.87, which is lower than that of VBR and IJR, indicating that it is less correlated with the overall market. This can be beneficial in times of market volatility.

In a head-to-head comparison with SPY and QQQ, AVUV has also outperformed, with a CAGR of 14.76% compared to 8.84% for SPY and 7.84% for QQQ.

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Let's take a closer look at the pros and cons of Avantis ETFs. US small-cap value has been one of the most successful factor investing strategies in both the 20th and 21st century from a returns standpoint.

One of the key advantages of Avantis ETFs is their ability to combine with other Avantis small-cap value funds to globally diversify your portfolio. This can be especially useful in times of market uncertainty.

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A core exposure to nearly 700 positions with a clear mandate to exclude junk (low quality/profitability) sets Avantis ETFs apart from other small-cap value funds. This approach can help minimize risk and maximize returns.

Here are some of the key pros of Avantis ETFs:

The Avantis ETFs also have a strong track record of avoiding expensive large cap stocks with stretched valuations, which can be a major advantage in times of market volatility.

Avantis ETFs may not be the most tax-efficient option. Vanguard index funds and their ETF equivalents are very, very tax-efficient, with a loss of 21.8% to taxes over a five-year period.

Avantis investors may also be disappointed with the securities lending program, which only gives them 90% of the income from securities lending, compared to Vanguard investors who get to keep 98%+. This may not seem like a lot, but it can add up over time.

It's worth noting that Avantis funds have a bit more of a value tilt, which could lead to lower tax efficiency.

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The additional expense of Avantis ETFs is a significant hurdle they must overcome to earn real alpha. This expense can be substantial, especially in certain asset classes.

For example, the expense ratio of AVUV is 0.25%, which is a 18 basis point difference compared to VBR's 0.07%. This difference is a lot less economy of scale.

Some of this difference is profit, since Avantis is a for-profit company, while the rest is additional cost.

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Tax efficiency is a crucial factor to consider when investing in index funds. Vanguard index funds and their ETF equivalents are very tax-efficient.

Avantis funds, on the other hand, have a similar tax efficiency profile, with a loss of 21.8% to taxes, as seen in the AVUS prospectus. This is essentially a tie with Vanguard's VTI fund.

Given that most Avantis funds have a value tilt, we would expect lower tax efficiency.

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Securities lending is a key aspect to consider when evaluating investment options. Vanguard investors get to keep 98%+ of the income from securities lending by the fund.

This is a significant advantage, as it means more of the fund's income can go directly to the investors. Avantis investors, on the other hand, only get 90% of the income from securities lending, which is still more than some companies but less than Vanguard.

For example, Avantis investors receive 90% of the income from securities lending, while Vanguard investors receive 98%+. This difference may seem small, but it can add up over time and impact the overall performance of the fund.

Avantis was among the early adopters of actively managed ETFs, launching its first in 2019. This forward-thinking approach paid off, as the company was "kind of the first mover" in the area.

The shift towards low-cost funds has been a significant trend, with investors favoring cheap options. As of March this year, the cheapest quintile of active ETFs holds $325 billion in assets.

Investors' preference for low-cost funds has been a major driver of Avantis' success, with its funds boasting an average expense ratio of 21 basis points. This is far less than the 69-point average for active ETFs as a whole.

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I like that Avantis ETFs offer active management at a very low cost, providing flexibility.

This approach allows you to get a positive loading on momentum at the portfolio level by adding other ETFs, such as $QMOM or $IMOM.

The commitment to evidence-based investing is also a major plus, as it means not screening for value or profitability first, but rather screening for both simultaneously.

This approach gives you all the exposure to value and profitability you want, without negatively loading on momentum.

Other investors and experts have shared their thoughts on the AVUV ETF, and they're worth checking out.

Rob Berger on YouTube mentions the fund's ability to screen for profitability, eliminating junk and offering deeper value/size exposure.

ETFguide on YouTube highlights the fund's unique features, but the exact details are not specified in the article section.

MOKI Finance on YouTube also discusses the fund, but the specific points they make are not mentioned in the article section.

TD Ameritrade Network on YouTube is another source that provides insights on the fund, but the article section does not specify what they say.

The AVUV ETF screens for profitability, which is a key factor in its investment strategy.

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Adopting active ETFs early on has proven to be a smart move. Avantis was among the first to launch actively managed ETFs in 2019, taking advantage of an SEC rule change that made it easier to create such funds.

This forward-thinking approach has paid off for Avantis. Its funds have an average expense ratio of 21 basis points, significantly lower than the 69-point average for active ETFs as a whole.

Investors are increasingly shifting towards low-cost funds, and Avantis is benefiting from this trend. As of March this year, the cheapest quintile of active ETFs holds $325 billion in assets, while the most expensive quintile holds just $35 billion.

The focus on active ETFs has come at the right time, as eight of the last nine years saw outflows from actively managed mutual funds and flows into active ETFs. This trend has accelerated, with $1.6 trillion flowing out of active mutual funds over 2022 and 2023.

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Investors are shifting their focus to low-cost funds, with the cheapest quintile of active ETFs holding $325 billion in assets as of March this year.

This trend is significant, as it shows a clear preference for funds with lower expense ratios. Avantis' funds, for example, have an average expense ratio of 21 basis points, which is far less than the 69-point average for active ETFs as a whole.

The cheapest quintile of active ETFs now holds more assets than the most expensive quintile, which has just $35 billion in assets. This is a stark contrast to the past, where investors were willing to pay more for funds with higher expense ratios.

Avantis' funds are well-positioned to benefit from this trend, with nearly 90% of its assets in its ETFs. Its largest fund, the Avantis US Small Cap Value Fund AVCNX, has $850 million in assets.

Here are the expense ratios for Avantis' funds compared to the average for active ETFs: