AVES - AVES: A Promising Emerging Markets ETF

Summary

• Avantis Emerging Markets Value ETF is an actively managed exchange-traded fund in emerging markets focused on value and profitability.
• AVES holds a large portfolio of 1300+ companies, mostly in Asia.
• It is well diversified, but it is underweight in defensive sectors.
• Over 45% of asset value is directly exposed to geopolitical risks related to China.
• Past performance relative to competitors is promising.

After more than a decade of roller-coaster without a long-term trend, emerging markets may be poised to outperform U.S. equities. At least, analysts at Morgan Stanley and Lazard think so. A number of exchange-traded funds, or ETFs, provide exposure to emerging countries. This post overviews one of newest ones.

AVES strategy and portfolio

The Avantis Emerging Markets Value ETF ( AVES ) is an actively managed ETF launched on 09/28/2021. The fund has about 1380 holdings, with 279 of them weighing more than 0.1% of asset value. It has a 12-month trailing yield of 3.53% and an expense ratio of 0.36%. Distributions are paid semiannually.

As described in the prospectus by Avantis Investors , the fund places “ an enhanced emphasis on securities of companies with smaller market capitalizations and securities of companies with higher profitability and value characteristics. ” Value is mainly defined by the fund managers as adjusted book/price ratio, and profitability as adjusted cash from operations to book ratio. Other fundamental metrics may be considered, as well as past performance, industry classification, liquidity, float, tax and governance.

Despite the prospectus pointing to smaller capitalizations, the fund is mostly invested in large and mega cap companies (about 62% of assets according to Fidelity). China is by far the heaviest country with 27.7%, followed by Taiwan (16.9%), India (15.7%) and South Korea (13.5%). Other countries are below 6%. Asian countries together weigh over 83%. Exposure to geopolitical and regulatory risks related to China is very high: the aggregate weight of China, Taiwan and Hong-Kong is 46.9%. The next chart lists the top 10 countries, representing 93.6% of the portfolio value.

The heaviest sector is financials (about 18%), followed by technology (13.3%) and materials (13%). Other sectors are below 10%. The fund is well diversified across sectors, but defensive sectors are underweight.

The top 10 holdings, listed below, represent 9.2% of asset value. The heaviest holding weighs about 1%, so risks related to individual companies are very low.

Past performance compared to competitors

The next chart compares AVES with other emerging markets funds since inception (09/28/2021), in total return:

• The iShares MSCI Emerging Markets ETF ( EEM )
• The Avantis Emerging Markets Equity ETF ( AVEM )
• The Schwab Fundamental Emerging Markets Large Co. Index ETF ( FNDE ),
• The WisdomTree Emerging Markets Quality Dividend Growth Fund ( DGRE ), reviewed here
• The WisdomTree Emerging Markets SmallCap Dividend ETF ( DGS ), reviewed here .

AVES is in the second-best performer in the list behind the small-cap fund DGS. Excluding dividends, AVES and DGS are tied (see next chart).

Takeaway

AVES is an actively managed ETF invested in about 1,300 companies listed in emerging markets. Avantis Emerging Markets Value ETF is well-diversified across holdings and sectors, but defensive sectors are underweight. Like most emerging markets funds, AVES has a high exposure to geopolitical and regulatory risks related to China. The return since inception is attractive relative to other emerging markets funds. Avantis Emerging Markets Value ETF price history is too short to assess the actively managed strategy, but it is promising in its category. For transparency, a dividend-oriented part of my equity investments is split between a passive ETF allocation and my actively managed Stability portfolio (14 stocks), disclosed and updated in Quantitative Risk & Value.

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