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AVGE: The New All-in-One Global Factor ETF From Avantis
This new ETF could be a great all-in-one holding for factor investing enthusiasts.
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For years, factor ETF investors had to make do by slicing-and-dicing their portfolios with a variety of different ETFs. For example, A factor investor may hold a total U.S. market and total international market ETF, while adding two additional small-cap value ETFs for each market.
This approach could get excessively complicated, especially if you wanted to target more than one factor. Adding others like large-cap value, emerging market value, etc could quickly over-complicate your portfolio to the point where the time spent is no longer worth the potential alpha.
This problem is now moot thanks to Avantis Investor's launch of the Avantis All Equity Markets ETF (AVGE). Since its debut in September 2022, AVGE has attracted just over $100 million in assets under management, an impressive pace for a new ETF. Let's see what makes it tick.
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AVGE ETF breakdown
AVGE was launched by Avantis with the goal of providing a low-cost, simple, one-stop shop for equity factor investors. The ETF is designed to offer investors a globally diversified equity portfolio with small-cap, value, and small-cap value factor tilts.
To achieve this, AVGE uses a "fund of funds" structure that allocates to various underlying Avantis factor ETFs. As of January 12th, the underlying ETF styles and their weights are:
- U.S. equity blend: 44.01%
- U.S. large-cap value: 15.10%
- International equity blend: 10.53%
- Emerging market blend: 6.00%
- International large-cap value: 5.38%
- U.S. small-cap value: 5.07%
- U.S. small cap: 4.93%
- Emerging market value: 3.93%
- U.S. REITs: 2.86%
- International small-cap value: 2.08%
Most investors would struggle to manage a portfolio of this complexity on their own. Rebalancing would be a nightmare, not to mention the urge to tinker. On the other hand, fund managers like Avantis have the skills, discipline, and tools to manage this effectively.
Thoughts on AVGE ETF
I think the ETF is a good one-size-fits-all for factor investors who are tired of the slice-and-dice approach. The portfolio is globally diversified with a roughly 70/30 split between U.S. and international equities and achieves a meaningful small-cap, value, and small-cap value tilt.
What's particularly attractive about AVGE is its expense ratio. Currently, the fund has a net expense ratio of 0.23%, which works out to around $23 in annual fees for a $10,000 investment. I think this offers a great bang for your buck, especially compared to other factor ETF offerings out there.
The ETF is currently benchmarked to the MSCI ACWI (All Country World Index) Index with the goal of outperforming it over long periods of time. Expect high tracking error with AVGE, as factor strategies can take a while to pay off, especially when it comes to size and value.
Overall, I think AVGE is one of the better ways to achieve a factor tilt at a low cost and with great simplicity. Factor investors tend to over-tinker and over-analyze their portfolio, and a managed solution like AVGE can go a long way towards encouraging better behavior.
Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decisions.
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