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.
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.
Interestingly, because it’s just a fund of funds, AVGE investors should 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.
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.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational 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. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.
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