AVGV is a new ETF from Avantis that is a single fund solution for the global stock market investor who wants to go all in on Value stocks. I review it here.
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If you've arrived here, I'd guess you already know Avantis is one of the best names in the biz for factor funds, that Value has the most robust statistical evidence of all equity risk factor premia, and that global diversification in stocks is probably a prudent idea. In March 2023, Avantis filed for a new fund for global value stocks, for which the ticker is AVGV. AVGV just launched in June 2023.
Previously, the global investor who wanted to only buy Value stocks had to use multiple ETFs. Simplicity in portfolios can be extremely valuable, both for advisors and retail investors themselves. Avantis will now soon offer a single packaged solution to go “all in” on Value globally.
AVGV is the second “fund of funds” from Avantis after AVGE. While AVGE is global stocks with light factor tilts, think of AVGV as basically half of AVGE, holding only Value stocks – no blend or growth here. As such, this is probably only suitable for the “die-hard” factor investor. Still not quite as die-hard as Swedroe though, who goes all in on small cap value; we've still got large cap value here. AVGV introduces much more potential for tracking error regret compared to AVGE.
AVGV has an explicitly stated home country bias for the U.S., but it's less than AVGE's 70%. Target weights for AVGV for U.S., ex-US Developed Markets, and Emerging Markets are 60%, 30%, and 10% respectively. These also have acceptable ranges of basically 10% on either side of the target. Specifically, here's what the breakdown of the 5 constituent funds looks like:
- U.S. Value Stocks – 60% target; acceptable range of 50-70%
- AVLV – Avantis U.S. Large Cap Value ETF
- AVUV – Avantis U.S. Small Cap Value ETF
- Ex-US Developed Markets Value Stocks – 30% target; acceptable range of 20-40%
- AVIV – Avantis International Large Cap Value ETF
- AVDV – Avantis International Small Cap Value ETF
- Emerging Markets Value Stocks – 10% target; acceptable range of 5-20%.
- AVES – Avantis Emerging Markets Value ETF
As with AVGE, managers appear to have some freedom to allocate within target ranges. The registration filing 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.
Previously I said the main thing that jumped out to me was the fact that it was not stated anywhere what the allocation ratio was for large caps to small caps. In my opinion, AVGV's desirability hinges heavily on where that rests. Dedicated factor investors are likely seeking a heavy tilt toward small cap value, much more so than market cap weights would provide.
Now that the fund is out, we can see AVGV's ratio of large cap value to small cap value is almost exactly 2:1. For reference, market cap weights would be about 10:1 and I personally use 1:1 in my portfolio. This means AVGV does indeed have a pretty appreciable tilt toward smaller stocks.
I made the point about AVGE that it overweights large caps, presumably to be close to market cap weights, but I'd rather see more weight to small cap value. Here with AVGV, if they want a more aggressive tilt, small cap value fans would still need to hold on to their AVUV and AVDV positions separately to purposely overweight them. But then if you do that, you're still using 3 funds while AVGV only holds 5 funds, so have you really accomplished anything?
AVGV may be the perfect solution for the global market cap investor (think Vanguard's VT) who wants to dial in a global Value tilt with the addition of 1 single fund, which was previously impossible to achieve without several funds.
Because it's just a fund of funds, American AVGV investors will get pass-through foreign tax credits on its 3 underlying international funds. But AVGV is probably not great for a taxable environment.
After a fee waiver of 0.02%, AVGV has a net expense ratio of 0.26%.
What do you think of AVGV? Do you prefer it over AVGE? Let me know in the comments.
Disclosures: I am long AVUV and AVDV in my own portfolio.
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