AVGV: Diversified Global Equity Value ETF, Cheap Valuation, Strong Performance (NYSEARCA)

Avantis offers investors a suite of diversified, actively-managed value ETFs, focusing on most relevant equity segments and markets. Although these rarely have high yields, they have very competitive prices and valuations, and generally outperform relevant peers and indexes.

The Avantis All Equity Markets Value ETF (NYSEARCA:AVGV) invests in six different Avantis value ETFs with strong performance track-records and provides investors with diversified exposure to global value stocks. AVFV’s strong performance and diversified holdings make the fund a buy.

On a more negative note, with an estimated 2.6% forward yield, the fund is not an effective income vehicle. The fund is also small and a bit illiquid, with only $48M in AUM.

AVGV – Quick Overview

AVGV invests in the following six ETFs:

Each of the ETFs above provides diversified exposure to a specific equity market segment, with a tilt towards cheaper companies and industries.

As an example, the Avantis US Large Cap Value ETF (AVLV) provides diversified exposure to U.S. large-caps, with investments in most well-known mega-caps, including Apple (AAPL) and Facebook (META). Largest holdings are as follows.

At the same time, AVLV tilts towards cheaper companies and industries. Energy is the cheapest industry:

and energy has the second highest weights in the fund:

The other five ETFs have similar portfolios and strategies, but targeting different equity market segments.

AVGV provides investors with several important benefits. Let’s have a look at these.

AVGV – Benefits and Positives

Diversified Holdings

AVGV is an incredibly well-diversified fund, with diversified exposure to most relevant equity market regions and segments, and with indirect exposure to thousands of securities.

AVGV includes mega-cap tech stocks like Apple, blue-chip dividend stocks like Johnson & Johnson (JNJ), smaller international stocks excluded from most major equity indexes like Kia Corporation and Hyundai, and everything in between. AVGV does exclude some of the frothier growth names like Tesla (TSLA) and Nvidia (NVDA), but it does have some tech and growth exposure. It is missing few relevant equity segments, although it is underweight several.

Diversification reduces portfolio risk and volatility, and the potential for significant over and underperformance. AVGV’s value tilt could result in excess gains and returns, but I would not expect significant outperformance. The fund is simply too diversified for that.

Cheap Valuation

AVGV’s underlying funds all tilt towards cheaply valued companies and industries, resulting in a comparatively cheap valuation for AVGV itself. The fund trades at a significant discount to the S&P 500, as well as global equity indexes and value indexes.

AVGV’s cheap valuation benefits investors in two key ways.

First, cheap valuations mean strong potential capital gains and returns. For these to occur investor sentiment must improve, which could happen for many reasons.

As an example, value significantly outperformed during 2022, as higher interest rates and inflation caused investors to shift away from frothier, more uncertain growth stocks, to old-economy industries and stocks with more reliable, less exciting business models and cash-flows. Energy, overweight in several of AVGV’s underlying funds, saw incredibly strong gains during the year, as oil prices surged.

AVGV’s cheap valuation could potentially lead to significant capital gains to investors, an important benefit. On the other hand, I don’t personally see any short-term catalyst that might precipitate a shift towards value or towards higher valuations across relevant industries. At least not right now.

Second benefit of cheap valuations, is that these boost the positive impact of dividends and buybacks. Exxon’s (XOM) earnings per share would increase by around 9.6% if it plowed every penny it earned last year into buybacks, due to its 10.4x PE ratio. Microsoft’s earnings would only grow by around 2.8%, due to its much higher 33.2x PE ratio. Exxon’s share count has, in fact, decreased by much more than Microsoft’s these past few years, in no small part due to Exxon’s low share price.

The issues above are of particular importance to the energy industry, as said industry is returning a lot of cash to shareholders. Do remember that AVGV is overweight energy.

Strong Performance Track-Record of Underlying Holdings

AVGV is a relatively young fund, with inception in 6/27/2023. In my opinion, as the fund’s performance track-record is very short, it is not terribly material to investors. The track-record of AVGV’s underlying funds, however, is much longer, more informative, and very strong too. Let’s have a quick look at each fund.

AVLV – U.S. Large-Cap Value

AVLV, focusing on U.S. large-caps, has slightly outperformed the S&P 500 and U.S. large-cap value indexes since inception. Performance is a bit stronger relative to the S&P 500.

AVIV – International Large-Cap Value

AVIV, focusing on international large-cap value, has underperformed the S&P 500 since inception, outperformed international equity indexes.

AVUV – U.S. Small-Cap Value

AVUV, focusing on U.S. small-cap value, has outperformed both the S&P 500 and relevant benchmarks since inception.

AVDV – International Small-Cap Value

AVDV, focusing on international small-cap value, has underperformed the S&P 500, but outperformed international equity indexes.

It also has outperformed relative to international small-cap value indexes.

AVES – Emerging Market Value

AVES, focusing on emerging market value, has underperformed relative to the S&P 500, outperformed relative to emerging market equity indexes.

It also has outperformed relative to emerging market value indexes.

AVMV – U.S. Mid-Cap Value

Finally, AVMV is too young a fund to meaningfully analyze its performance track-record, with an inception date of 11/07/2023. This is a relatively small holding for AVGV, with a weight of only 7.6%.

AVGV – Performance Analysis

Considering the above, I believe that the overall performance track-record of AVGV’s underlying holdings is quite strong.

Four out of five funds have outperformed their benchmark, one has matched it.

Five out of five have outperformed their region.

The two U.S. funds have outperformed relative to the S&P 500, unlike broader U.S. value equity indexes. Outperformance is not consistent, however.

I’ve covered other Avantis funds besides the ones above, and they do tend to outperform their benchmarks. The strategies used by the company do seem to work. So far at least.

Finally, and in the interest of full disclosure, AVGV itself has very slightly underperformed the S&P 500, outperformed U.S. value indexes since inception. Can’t say I find this information terribly material, but I imagine some readers would have been curious. AVGV had actually outperformed when this article was originally published on my investment group, and I still thought the information was not terribly material.

AVGV – Other Considerations

AVGV is a fund of funds, which means investors must pay two sets of fees, increasing expenses and lower returns. AVGV itself charges a 0.05% management fee, quite low, and not terribly impactful. Investors could easily avoid these fees by constructing their own portfolios, but the fees are quite low, and some might prefer the simplicity and ease of AVGV over building a portfolio. AVGV has an overall expense ratio of 0.26%, including the management fees of its underlying funds.

AVGV is a small fund, with only $48 million in AUMs.

Small funds are generally illiquid, with AVGV having a volume of 1,396 shares, or $76,780. Volume was higher in the past.

Bid / ask spreads seem more reasonable, at 0.13%.

In any case, taking care before buying or selling AVGV seems wise.

Small funds are always at risk of being shut down as well. AVGV is a young fund, and has seen steady AUM growth since inception, so I am not terribly concerned about this eventuality. If the fund does get shut down, investors would simply receive their money back. It might be a small hassle, but there should be no losses, perhaps some taxes.

Conclusion

AVGV invests in six different value ETFs with strong performance track-records, and provides investors with diversified exposure to global value stocks. It is a strong investment opportunity, and a buy.