Avantis® U.S. Small Cap Value ETF (AVUV)

Overview of Avantis® U.S. Small Cap Value ETF (AVUV)

Profile:

This actively managed ETF is designed to provide capital appreciation, primarily through investment in small-cap companies with lower valuations. AVUV focuses on US companies with market capitalizations between $300m and $3bn. It employs a factor-driven approach, seeking firms with characteristics associated with better future returns, like higher profitability and lower growth expectations.

Objective:

AVUV aims to outperform the CRSP US Small Cap Value Index by capturing return premiums associated with specific investment factors.

Issuer:

Launched in December 2019, AVUV is sponsored by Avantis Investors, a US investment management firm known for its factor-based investing expertise. The company boasts experience in quantitative strategies and an active management philosophy.

Market Share:

While AVUV is a relatively newer ETF, it holds a substantial market share in the small-cap value ETF category, capturing 4.53% as of October 2023.

Total Net Assets:

AVUV enjoys significant investor trust, holding an impressive $4.15 billion in net assets as of October 2023.

Moat:

AVUV’s competitive strength lies in its distinct factor-based investing strategy. This approach goes beyond traditional market capitalization weighting and focuses on identifying stocks with undervalued characteristics across defined factors. Additionally, Avantis Investors’ expertise and track record in factor investing contribute to the fund's unique edge.

Financial Performance:

AVUV has delivered strong historical performance, exceeding its benchmark index, the CRSP US Small Cap Value Index. It has a 3-year annualized return of 13.42%, outperforming the benchmark's 11.82% return, showcasing its ability to generate alpha.

Growth Trajectory:

AVUV's strong performance and rising popularity point towards a promising growth trajectory. Growing awareness of factor investing and a continued focus on small-cap opportunities suggest potential for further asset growth.

Liquidity:

AVUV enjoys high liquidity, averaging over 450,000 shares traded daily. This translates to a tight bid-ask spread, minimizing the cost and impact of trading the ETF.

Market Dynamics:

The performance of AVUV is tied to various market dynamics:

• Economic indicators: Strong economic growth can drive demand, benefiting small-cap businesses and potentially boosting AVUV.
• Interest rates: Rising rates can negatively impact small cap companies, potentially causing AVUV to underperform.
• Market volatility: Increased market volatility tends to impact smaller companies more significantly, potentially amplifying AVUV's highs and lows.

Competitors:

Key competitors in the small-cap value ETF space include:

• iShares S&P SmallCap 600 Value ETF (IJS): 6.99% market share
• Vanguard Small-Cap Value ETF (VISV): 31.46% market share
• SPDR S&P 600 Small Cap Value (SLYV): 4.13% market share

Expense Ratio:

AVUV's expense ratio is currently 0.25%, placing it among the more competitively priced ETFs in its category.

Investment Approach & Strategy:

• Strategy: AVUV actively manages its portfolio, selecting undervalued small-cap stocks based on specific value and profitability factors.
• Composition: The fund primarily holds small-cap US stocks with a value tilt, meaning they tend to have lower valuations relative to their industry peers.

Key Points:

• Factor-based strategy seeking higher returns
• Strong historical performance exceeding benchmark
• High liquidity and competitive expense ratio
• Strong growth potential
• Actively managed by experienced team

Risks:

• Market risk: Small-cap stocks tend to exhibit higher volatility than large-cap counterparts, potentially leading to larger price swings.
• Investment factor risk: The reliance on specific investment factors for outperformance can expose the fund to heightened risk if those factors fall out of favor in the market.

Who Should Consider Investing:

AVUV is a suitable option for long-term, growth-oriented investors who:

• Seek higher potential returns through active management
• Can tolerate higher volatility associated with small-cap stocks
• Trust factor-based strategies to outperform broad market indices

Fundamental Rating Based on AI:

8.5/10

AVUV’s robust strategy, impressive performance track record, competitive pricing, and growth potential position it as a strong option within the small-cap value ETF segment. While the market risk and factor exposure warrant consideration, the ETF offers compelling advantages for investors seeking long-term growth with higher potential returns.

Resources and Disclaimers:

This analysis is based on information gathered from Avantis Investors’ website, ETF.com, and Morningstar. As with any investment decisions, conducting thorough research and due diligence remains crucial. This analysis is provided for informational purposes only and should not constitute financial advice.