2023-06-21 13:59:37 ET
Summary
- Avantis® International Large Cap Value ETF has preferred to invest in less-volatile stocks of core economic sectors and has an inclination toward economies with best sovereign bond ratings.
- AVIV’s top 25 investments in four core economic sectors (energy, materials, industrial & financial) have delivered strong price growth over the past 12 months.
- Since the beginning of 2023, developed global markets have started sending encouraging signals in terms of their growth prospects in the coming months.
- AVIV has a low yield, but until now has generated a strong total return. The fund doesn’t seem to be overvalued, and is suitable for growth-seeking investors.
~ by Snehasish Chaudhuri, MBA (Finance).
Avantis® International Large Cap Value ETF (AVIV) is an exchange-traded fund ("ETF") that invests in value stocks of large cap companies in diversified sectors, This fund invests in different equity markets outside of the United States, and benchmarks its performance against that of MSCI World ex-USA Value Index. This international equity fund was launched and is managed by American Century Investment Management, Inc. AVIV has an asset base of $225 million with a relatively high turnover ratio of 47 percent. Expense ratio is under control at 0.25 percent. The fund is currently trading almost at par with its NAV and is expected to generate strong total returns over the longer term.
AVIV Invests In Stocks From Developed Economies Having Best Sovereign Ratings
Avantis International Large Cap Value ETF was formed on September 28, 2021, and has offered three semi-annual payouts since then. The yield so far has been low between 1.75 to 2.65 percent. AVIV invests in stocks which deliver growth in earnings and cash flow. 81 percent of its assets are in eight countries - Japan, Canada, the United Kingdom, France, Germany, Australia, Spain and Switzerland. All these are large developed economies with extremely high (at least A+) sovereign bond ratings. So, AVIV's portfolio has a significantly lower level of risk. Also, two-third of its assets are invested in stocks from core economic sectors such as financial, industrial, materials, and energy sectors.
AVIV Invests In Large-Cap Stocks From Energy, Materials & Industrial Sectors
Major investments of Avantis International Large Cap Value ETF included some of the largest energy producers and suppliers. These include Shell plc ADR ( RYDAF ), BP p.l.c. ( BP ), Canadian Natural Resources Limited ( CNQ ), Mitsubishi Corporation ( MSBHF ), Repsol, S.A. ( REPYF ) and TotalEnergies SE ( TTE ). BHP Group Limited ADR ( BHPLF ), Rio Tinto Group ( RIO ) and Glencore plc ( GLCNF ) are largest basic material mining companies. Semiconductor manufacturers - ASML Holding NV ADR ( ASMLF ) and Infineon Technologies AG IFX ( IFX ) are also among AVIV's major investments. Investments in Industrial powerhouses included Sony Group Corporation ADR ( SNEJF ) and Vinci SA ( VCISF ).
AVIV's Investments in Core Economic Sectors Recorded Strong Price Growth
AVIV's major investments in the financial sector included German insurer - AIA Group Limited ( AAGIY ); Japanese diversified financial groups - Mitsubishi UFJ Financial Group, Inc. ( MUFG ) and Sumitomo Mitsui Financial Group, Inc. ( SMFG ); British and Canadian banks - Royal Bank of Canada ( RY ) and Barclays PLC ADR ( BCLYF ); some of the largest European diversified banking group - UniCredit S.p.A ( UNCFF ), UBS Group AG ( UBS ), BNP Paribas SA ( BNPQF ), Banco Santander, S.A. ( SAN ), and Banco Bilbao Vizcaya Argentaria, S.A. ( BBVA ). During the past twelve months, all these 25 stocks recorded positive price growth. Semiconductor giants recorded price growth between 55 to 65 percent. Energy and materials stock mostly recorded double-digit growth. These returns were very much expected since a lot of these companies are profiting from the ongoing military conflict between Russia and Ukraine.
AVIV Recorded Double-Digit Price Growth, Total Return During the Past 12 Months
BBVA grew by 80 percent, while MSBHF grew by 60 percent. UNCFF's price doubled during this period. UBS, SMFG, SAN and VCISF also registered a price growth in excess of 30 percent. AVIV also was able to register a price growth of 13.23 percent during the same period, while its total return stood at 16.56 percent. Avantis International Large Cap Value ETF also partially matched the S&P 500 ( SP500 ), which registered a total return of 22.35 percent. Weighted average P/E of stocks held by AVIV stands at 8.31. It is currently trading at $50, almost at par with its net asset value. Thus, the stock doesn't seem to be overvalued. However, it is trading close to its 52-week high price of $52.03.
AVIV Has The Ability To Sail Through Economic Downturns, But Caution Is Required
Since the beginning of 2023, global economies have started sending encouraging signals in terms of growth prospects in the coming months. China ultimately came back to its usual growth, and relaxation of its COVID-19 containment measures benefitted basic materials and industrial sectors. This also has resulted in higher prospects in other economies, as the Chinese economy and businesses are closely knit to the global supply-chain. Russia's invasion of Ukraine and subsequent economic sanctions are continuing to be beneficial for the energy sector. Financial sector, especially banking, as we all know, is a direct beneficiary of any form of development or economic growth.
However, the unemployment rate still is exceptionally high, and the European and American markets have remained subdued. This reassigns the fact that the business environment remains challenging and resumption of robust growth is by no means assured. However, over the short run, it might suffer from various economic and geopolitical problems such as monetary tightening, uncertain global growth prospects, increasing unemployment, increasing socio-political disruption, climate risks, downfall in the real estate sector, China's political and military tensions with Taiwan, etc.
Investment Thesis
Avantis International Large Cap Value ETF has preferred to invest in less-volatile segments of the market, and has an inclination toward economies with best sovereign bond ratings. Its top 25 investments in four core economic sectors (energy, materials, industrial & financial) had delivered strong price growth over the past 12 months. Despite having the option of investing in some of the world's fastest growing large economies like China, India, Indonesia, Vietnam, Thailand, Malaysia, etc., AVIV has preferred to concentrate on least risky markets with a large and established economy. Its portfolio is composed of large-cap value stocks, and tends to hold its investments for a longer period of time.
Avantis® International Large Cap Value ETF has a low yield, but till now has generated a strong total return. The AVIV fund doesn't seem to be overvalued, and thus is a suitable hold option for long-term growth-seeking investors, due to its low risk, low volatility, smart diversification, and strong total returns.
For further details see:
AVIV: International Equity ETF For Long-Term Growth-Seeking Investors