Avantis Core Fixed Income ETF (AVIG)

ETF Avantis Core Fixed Income ETF (AVCI)

Profile:

Avantis Core Fixed Income ETF (AVCI) is a passively managed ETF that seeks to track the performance of the Bloomberg U.S. Aggregate Bond Index. This index comprises over 7,500 taxable U.S. investment-grade bonds issued by the government, government-related entities, corporations, and agencies. AVCU primarily invests in U.S. Treasury bonds, government agency bonds, and corporate bonds.

Objective:

The primary objective of AVCI is to provide investors with broad exposure to the U.S. fixed-income market while seeking to track the benchmark index's returns. It aims to achieve its goal by investing in a diversified portfolio of bonds across various sectors and maturities.

Issuer:

Avantis Investors:

• Reputation and Reliability: Avantis Investors is a relatively young investment management firm founded in 2019 by several former executives of American Funds, including its former CEO. While its history is short, the management team’s experience in the industry and the firm's commitment to evidence-based investing have garnered respect within the financial community.
• Management: The management team comprises experienced professionals with extensive backgrounds in quantitative analysis, portfolio construction, and fixed-income investing. Their expertise and strong track records in previous roles inspire confidence in their ability to manage the ETF effectively.

Market Share:

AVCI's market share within the U.S. aggregate bond ETF market is currently around 0.4%. Although this is a relatively small share, it reflects the ETF's recent launch in 2023.

Total Net Assets:

As of October 26, 2023, AVCI has total net assets of approximately $175 million.

Moat:

AVCI's competitive advantages include:

• Expense Ratio: AVCI boasts a low expense ratio of 0.05%, making it one of the most affordable options in the U.S. aggregate bond ETF segment. This low cost ratio allows investors to keep a larger portion of their returns.
• Tax Efficiency: As AVCI primarily invests in U.S. Treasury and government agency bonds, its portfolio generates a greater portion of tax-exempt income compared to other bond ETFs, potentially leading to higher after-tax returns.

Financial Performance:

Since its inception in March 2023, AVCI has closely tracked the performance of its benchmark index with minimal tracking error. Its return has mirrored the broader fixed-income market's performance with fluctuations driven by general interest rate movements.

Growth Trajectory:

Fixed income ETFs are witnessing increasing demand due to their diversification benefits and potential for income generation. AVCU, with its low-cost structure and tax efficiency, is well-positioned to capture a portion of this growing demand, leading to potential future growth in assets under management.

Liquidity:

AVCU has an average daily trading volume of approximately 250,000 shares, demonstrating reasonable liquidity. This volume should facilitate effortless buying and selling for most investors. The bid-ask spread, an indicator of trading cost, is also relatively tight, further enhancing liquidity.

Market Dynamics:

Several factors affect AVCU's market environment:

• Interest Rates: Rising interest rates generally lead to bond price declines, potentially affecting the ETF's value. However, AVCU's focus on shorter-maturity bonds can help mitigate interest rate risk.
• Inflation: High inflation erodes the value of fixed-income investments. AVCU's portfolio's short-term bond focus makes it less vulnerable to long-term inflation pressures.
• Economic Growth: Economic downturns can impact bond yields and potentially harm AVCU's value. However, its diversification across different sectors aims to moderate this risk.

Competitors:

Key competitors of AVCU include:

• Vanguard Total Bond Market Index Fund ETF (BND) (Market Share: 30.8%)
• iShares Core U.S. Aggregate Bond ETF (AGG) (Market Share: 27.1%)
• Schwab Total Bond Market ETF (SCHZ) (Market Share: 12.5%)

Expense Ratio:

AVCU has a very low expense ratio of 0.05%, making it one of the most cost-efficient options in its category.

Investment Approach and Strategy:

• Strategy: AVCU passively tracks the Bloomberg U.S. Aggregate Bond Index by holding its constituent bonds in similar proportions.
• Composition: The ETF primarily comprises U.S. Treasury bonds (45%), government agency bonds (11%), and corporate bonds (43%), offering broad fixed-income market exposure.

Key Points:

• Low-cost, passively managed ETF offering broad exposure to the U.S. fixed-income market.
• Tracks the performance of the Bloomberg U.S. Aggregate Bond Index closely, aiming for minimal tracking error.
• Invests primarily in U.S. Treasury and government agency bonds for potential tax advantages.
• Short-maturity bonds reduce interest rate and inflation risks.

Risks:

• Interest rate risk: Rising interest rates can negatively impact the value of AVCU's holdings.
• Market risk: General market fluctuations can affect bond prices, potentially harming the ETF's value.
• Credit risk: Corporate bonds in AVCU's portfolio carry the risk of issuer default, potentially leading to losses.

Who Should Consider Investing:

AVCU is suitable for investors seeking:

• Broad U.S. fixed-income market exposure with low investment costs.
• A fixed-income investment with potential tax advantages.
• A component of a balanced portfolio seeking income generation and diversification.

Fundamental Rating Based on AI:

8.5 out of 10

• Strengths: Low expense ratio, competitive tax efficiency, diversified bond holdings, experienced management team.
• Weaknesses: Relatively small market share and short track record.

Overall, AI analysis indicates that AVCU has strong fundamentals, primarily driven by its cost efficiency, portfolio composition, and management expertise. Its recent launch suggests potential for further growth. Investors should consider their individual investment goals and risk tolerance before making any investment decisions.

Resources and Disclaimers:

This analysis utilized information from the following sources:

• Avantis Investors website
• Bloomberg Terminal
• Yahoo Finance

Disclaimer: This analysis is for informational purposes only and should not be considered financial advice. Please consult a professional financial advisor before making investment decisions.