AVGE is a new ETF from Avantis that is a single fund solution for the global stock market investor who also wants to factor tilt. Let's review it.
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If you've arrived on this page, you probably already know that global diversification in equities is a prudent idea, that overweighting or tilting with certain risk factors may offer greater returns as well as a convenient diversification benefit, and that Avantis provide some of the best factor funds around. Here we're discussing AVGE, their newest global stock market factor ETF, which launched in late September, 2022. AVGE is the Avantis All Equity Markets ETF.
Previously, the global equities investor who also wanted factor tilts had to use multiple ETFs. This usually looked like VT, the “plain” global stock market ETF from Vanguard, combined with one or several small cap value ETFs (e.g. VIOV, AVUV, etc.), or some combination of broad market funds from Avantis themselves such as AVUS and AVDE. Simplicity in one's portfolio can be extremely valuable and its psychological benefits are often overlooked in my opinion. In that sense, AVGE may prove useful for the investor who wants to set it and forget it with a single fund for stocks.
AVGE is a “fund of funds” – the first from Avantis – that provides global diversification in equities, the low turnover of indexing, and Avantis's competency in factor investing, all for a relatively low fee of 0.23%. U.S. investors will also probably appreciate the purposeful, inherent home country bias. Specifically, at the time of writing, AVGE's components look like this:
AVUS – Avantis US Equity ETF – 45%
AVLV – Avantis US Large Cap Value ETF – 15%
AVDE – Avantis International Equity ETF – 10%
AVEM – Avantis Emerging Markets Equity ETF – 6%
AVUV – Avantis U.S. Small Cap Value ETF – 5%
AVSC – Avantis US Small Cap Equity ETF – 5%
AVIV – Avantis International Large Cap Value ETF – 5%
AVES – Avantis Emerging Markets Value ETF – 4%
AVRE – Avantis Real Estate ETF – 3%
AVDV – Avantis International Small Cap Value ETF – 2%
The dedicated allocation to REITs is there only because Avantis exclude REITs in their other funds.
The fund pretty heavily overweights U.S. large cap value stocks. I'd probably rather see them do that with small cap value stocks, but AVGE appears to be trying to stay at least somewhat close to global market cap weights, at least for cap sizes. The die-hard factor investor already using funds like AVUV and AVDV to overweight small cap value stocks globally may find the factor tilts here pretty light for their tastes.
I'd also prefer a more agnostic split between U.S. and international, but the home country bias likely makes AVGE more appealing to U.S. investors. AVGE provides roughly a 70/30 split between U.S. and international stocks. The fund's geographical target weights are as follows:
U.S. stocks – 70%
Ex-U.S. Developed Markets – 17%
Emerging Markets – 10%
Sectors (Real Estate) – 3%
But note that these stated targets also have pretty wide acceptable ranges, within which AVGE's managers may shift allocations based on prevailing market conditions. The fund's prospectus states:
The portfolio managers regularly review the fund’s allocations to determine whether rebalancing is appropriate. To better balance risks in changing market environments and control costs and tax realizations, the portfolio managers may allocate within the target range in light of prevailing market conditions and relative performance. We reserve the right to modify the target ranges and underlying funds from time to time should circumstances warrant a change.
We'll have to wait and see where AVGE's tax efficiency, turnover, and factor loadings come in at.
Avantis also state that “In the event of exceptional market or economic conditions, the fund may take temporary defensive positions that are inconsistent with the fund’s principal investment strategies.” This sounds like they may entertain buying other asset types like bonds with a small portion of the fund's assets, but then the name of the fund is the Avantis All Equity Markets ETF, so this is unclear. In this sense, AVGE can be considered more truly actively managed than their other funds, many of which are constituents themselves of AVGE, even if that management is only in regards to the strategic asset allocation thereof.
Avantis CIO Eduardo Repetto said in a news release that they built AVGE “to fill a gap for clients looking for a single option for total-market equity exposure with an emphasis on higher expected returns.” We can venture to guess that Avantis launched AVGE as a direct competitor to Dimensional's global equities fund DGEIX, with the former conveniently being cheaper by 2 bps. DGEIX is also a mutual fund from DFA that does not have an ETF equivalent at this time.
I'll be curious to see how AVGE's long-term performance compares to the stalwart VT from Vanguard, which is the default recommendation from many Bogleheads.
As an added bonus, because it's just a fund of funds, American AVGE investors get pass-through foreign tax credits on its underlying international funds, while VT is not eligible for one.
For the record, note that I'm not suggesting that VT and AVGE are similar products; they're not. But for VT investors wanting to make the switch, now in late 2022 may be a great time to harvest any losses from the recent bear market and pull the trigger.
For those wanting to go all in on Value, Avantis also filed for a new ETF AVGV in March, 2023
Conveniently, AVGE should be available at any major broker, including M1 Finance, which is the one I'm usually suggesting around here.
What do you think of AVGE? Are any fellow Bogleheads going to switch from “VT and chill” to “AVGE and chill?” Let me know in the comments.
Disclosure: I am long AVUV and AVDV.
Disclaimer: While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.
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I have heard a lot of debate as to whether this would give foreign tax credit or not. People keep recommending to hold this in an IRA. Do you think it is inappropriate to hold in a taxable account?
John Williamson says
Yea I’ve begun second guessing myself on that piece. I’m waiting to hear back from Avantis with some clarification on it. But no I wouldn’t call it “inappropriate” for taxable.
Hello, How would you ‘Improve’ AVGE like you did with M1 portfolio in Lazy Portfolio section. This could may be 53rd lazy portfolio.
John Williamson says
Basically my Ginger Ale Portfolio.
Trail Trade says
Are you paying the fee for each ETF within AVGE and then the .23 points for AVGE itself?
John Williamson says
Nope. Only AVGE’s fee.
Jeff Davis says
I’m going to try AVGE for the equity position in my 401(k). I already use GOVT for the fixed income portion.
I’ve played around with various asset allocations, often based on your Ginger Ale model. For me, I’m too tempted to tinker with asset allocations and get into my 401(k) and buy and sell in and out of positions on a weekly basis. The psychological benefit of using AVGE as a “set it and forget it” system might be good for me and stop me from my constant tinkering. That benefit may outweigh a less-than-perfectly-ideal-but-still-pretty-darn-good factor tilt.
My retirement account will contain two funds: AVGE and GOVT. So simple even I can’t screw it up (hopefully)!
John Williamson says
Great observation that is often overlooked, Jeff. The psychological benefit of mitigating or preventing tinkering is massively valuable.
I am thinking of switching to AVGE to simplify my current portfolio of VTI, VXUS, AVUV, and AVDV. I think the simplicity is worth the higher expense ratio, and then I can AVGE and chill.
Jonathan Huggins says
Thanks for the write up. I agree and wish factor tilts were a bit more aggressive to small cap value compared to large cap value. I’m actually ok with a small home country bias for various reasons both psychological and a point of diminishing returns in diversity benefit. I’m not opposed to 5% more to overweighting REITs for example in lieu of that same percentage being market cap weighted to developed International due to potential lower market correlation. Or overweighting emerging markets. I suppose I’m not a market cap zealot so much as I want complimentary diverse but uncorrelated equities with lots of growth potential. I suppose a solution to a heavier factor tilt would be supplementing this fund with additional AVUV or AVDV but I guess that kind of misses the point. Still 2-3 funds to manage is better than 10.
Thanks for taking the time to respond to my YouTube comment and the write up.
This fund looks very similar to the stock-only version of your Ginger Ale portfolio, no?
John Williamson says
Hey Audrey. Fairly similar, yes, but mine basically implements the things I said I wish AVGE did.
Hi John – I’m trying this again after some typos – first off thanks for your insight on AVGE. Would you recommend a bond ETF like EDV or BND in addition to AVGE, should I decide to go 100% AVGE?
John Williamson says
As usual, depends on your personal goal(s), risk tolerance, and time horizon. I can’t provide personalized advice.