2023-03-23 08:00:00 ET
Summary
- Avantis International Large Cap Value ETF is an actively managed ETF investing in value stocks outside the U.S.
- AVIV is well-diversified across a number of countries, sectors, and holdings.
- Compared to an international value index, AVIV selects stocks with higher growth in earnings and cash flow.
- It is close to the same index regarding total return, but price history is too short to make a statement.
This ETF (exchange-traded fund) article series aims at evaluating products regarding the relative past performance of their strategies and quality metrics of their current portfolios. As holdings and weights change over time, updated reviews are posted when necessary.
AVIV strategy and portfolio
Avantis International Large Cap Value ETF ( AVIV ) is an actively managed fund launched on 09/28/2021. It has 462 holdings, a 12-month distribution yield of 2.74%, and an expense ratio of 0.25%.
As described in the prospectus by Avantis Investors , the fund places
“ an enhanced emphasis on securities of companies with higher profitability and value characteristics. (…) To identify companies with higher profitability and value characteristics, the portfolio managers use reported and/or estimated company financials and market data including, but not limited to, shares outstanding, book value and its components, cash flows from operations, and accruals. The portfolio managers define “value characteristics” mainly as adjusted book/price ratio (though other price to fundamental ratios may be considered). The portfolio managers define “profitability” mainly as adjusted cash from operations to book value ratio (though other ratios may be considered) .”
Such a description offers a lot of flexibility to fund managers. On the downside, the investing process is a black box. It is impossible for us to duplicate and back-test it. In the latest fiscal year, the turnover rate was 47% of the portfolio’s average value.
In this article, I will use as a benchmark one of its largest and most liquid competitors: iShares MSCI EAFE Value ETF ( EFV ), which passively tracks the MSCI EAFE Value Index. Both funds are ex-U.S. global funds with a value investing style, and both hold mostly large and mega-cap companies: about 80% of asset value for AVIV, 86% for EFV.
AVIV is a bit cheaper than EFV regarding the P/E, Price/Sales and Price/Cash Flow ratios. It is slightly more expensive in Price/Book. Anyway, these funds don’t show a really significant difference in valuation metrics.
AVIV | EFV | |
Price/Earnings TTM | 8.57 | 9.69 |
Price/Book | 1.23 | 1.12 |
Price/Sales | 0.81 | 0.88 |
Price/Cash Flow | 5.25 | 5.99 |
Source: Fidelity.
It is a different story for growth metrics. AVIV is much better at finding stocks combining value and growth, especially “good” growth: in earnings and cash flow rather than sales. The next table reports growth rates in the trailing 12 months.
AVIV | EFV | |
Earnings growth % | 15.72% | 10.94% |
Sales growth % | 9.97% | 10.48% |
Cash flow growth % | 18.67% | 11.27% |
Source: Fidelity.
Europe is the heaviest region in both funds: about 55% for AVIV and 64% for EFV. A noteworthy difference in country allocation is the absence of Canada in EFV, whereas AVIV has 11% of assets in this country. Otherwise, country weights are close, with Japan and the UK taking the first two ranks in both funds. The next chart plots the top 10 countries, representing about 88% of asset value for each of the funds.
The top 3 sectors are the same in AVIV and EFV (financials, materials and industrials), but not in the same order (see next chart). Financials dominate both funds with 24.5% and 27.5% of assets, respectively. The top 3 sectors are better balanced in AVIV than in EFV. Compared to the passive index ETF, the actively managed fund moderately overweights materials, industrials, energy, consumer discretionary and technology. It massively underweights utilities, real estate, consumer staples and healthcare.
The next table lists the top 10 holdings, representing an aggregate weight of 15.3%. None of them is above 2.6%, so risks related to individual companies are low.
NAME | ISIN | WEIGHT | COUNTRY |
BP PLC | US0556221044 | 2.60% | UNITED KINGDOM |
SHELL PLC | US7802593050 | 2.48% | UNITED KINGDOM |
BHP GROUP LTD | US0886061086 | 1.87% | AUSTRALIA |
GSK PLC | US37733W2044 | 1.47% | UNITED KINGDOM |
LVMH MOET HENNESSY LOUIS VUITTON | FR0000121014 | 1.28% | FRANCE |
ROCHE HOLDING AG | CH0012032048 | 1.16% | SWITZERLAND |
TOTALENERGIES SE | US89151E1091 | 1.14% | FRANCE |
TOYOTA MOTOR CORP | US8923313071 | 1.11% | JAPAN |
REPSOL SA | ES0173516115 | 1.11% | SPAIN |
LLOYDS BANKING GROUP PLC | US5394391099 | 1.08% | UNITED KINGDOM |
Performance
Since AVIV inception, almost 18 months ago, there is no significant difference with EFV in total return. Anyway, price history is too short to assess the strategy performance.
Takeaway
Avantis International Large Cap Value ETF is an actively managed fund investing in value stocks outside the U.S. Its top 2 countries are Japan and the U.K., and its top 3 sectors are financials, materials and industrials. It is well-diversified across countries, sectors and holdings.
Avantis International Large Cap Value ETF is quite close to the MSCI EAFE Value Index regarding several points: country allocation, top sectors, valuation and total return since September 2021. However, portfolio metrics show AVIV is much better at selecting stocks combining value with growth in earnings and cash flow. Price history is too short to make a statement about performance.
For further details see:
AVIV: International Value ETF With A Tilt To Growth