AVES ETF Review – Avantis Emerging Markets Value ETF
AVES is a relatively new ETF from Avantis for targeted factor exposure in Emerging Markets. I review it here and compare it to its counterparts that are usually included in the same conversation, AVEM and DGS.
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If you’ve arrived on this page, you probably already know that overweighting or tilting with certain risk factors may offer greater returns as well as a convenient diversification benefit, and that Avantis provide some of the best factor funds around. Here we’re discussing AVES, their relatively new ETF for Value stocks in Emerging Markets, which launched in late 2021.
When Avantis first launched their ETF lineup, they had AVUV and AVDV for U.S. and ex-US Developed Markets small cap value respectively, but there was no such product for Emerging Markets small value. Fast forward 2 years and AVES has arrived to fill that void, at least somewhat.
It’s important to note a couple things right off the bat, which are probably the curiosities that led you to this page.
First, AVES inarguably delivers more targeted exposure than AVEM. That’s its entire purpose. Avantis launched AVEM in late 2019, 2 years before AVES. AVEM is part of their broad core family for market-like exposure with light factor tilts in Emerging Markets. As such, it’s sort of a stretch to call it a true Value fund, and AVEM is definitely not a small cap value fund.
Secondly, in a similar vein, note that AVES is still called the Avantis Emerging Markets Value ETF, which covers large, mid, and small caps. In other words, AVES is also not a true small cap value fund. It’s effectively mid-cap value. That said, it still seems to be a great choice to get close to that corner of the market that doesn’t have a lot of reliable, investable products.
Specifically, according to Avantis Senior Portfolio Manager Daniel Ong, “Unlike AVEM, which overweights companies that have high book-to-market ratios and high cash-based profitability, AVES will specifically target them. These are the higher expected return companies. AVES will hold large all the way down to small-cap companies, but it will shun mega caps in favor of smaller companies because that’s where higher expected returns are.”
If you’ve read any of my other posts on Emerging Markets value funds and my own portfolio, I still like DGS from WisdomTree as a dedicated Emerging Markets small cap value ETF. But that doesn’t mean AVES is not still a fine choice for similar exposure.
We’ve got a pretty limited time period, but here are the comparative factor loadings, market caps, P/E ratios, and expense ratios for these funds to illustrate the points I just noted in terms of AVEM vs. AVES vs. DGS:
| AVEM | AVES | DGS | |
|---|---|---|---|
| Beta | 1.01 | 1.15 | 1.04 |
| Size | -0.52 | -0.21 | 0.18 |
| Value | 0.02 | 0.20 | 0.37 |
| Profitability | 0.45 | 0.51 | 0.65 |
| Investment | -0.10 | 0.24 | -0.02 |
| Alpha | 0.03% | -0.13% | -0.04% |
| R2 | 99.1% | 98.7% | 95.0% |
| Market Cap | $55B | $12B | $3B |
| P/E | 9.24 | 7.21 | 7.26 |
| Fee | 0.33% | 0.36% | 0.58% |
So as we can see, we inarguably get better factor exposure going left to right from AVEM > AVES > DGS but we also obviously pay more in fees as we progress on that path as well. The most important takeaways here I think are the Value loadings and the relatively huge differences in average market cap. Notice how AVES is holding much smaller stocks than AVEM, and DGS is holding much smaller stocks than AVES.
So it just comes down to what kind of exposure you want, ranging from broad market with light tilts to pretty concentrated. As such, put another way, DGS is arguably unsuitable as a core holding, whereas AVEM would be. AVES is somewhere in the middle.
Index investors like staunch Bogleheads wanting to dip their toes into factors may shy away from the higher fees and more concentrated targeting of both AVES and DGS, so AVEM may be the best choice for that audience. The dedicated factor investor, on the other hand, may prefer the greater factor loadings of DGS compared to both AVEM and AVES.
Aside from all that, fans of Avantis’s methodologies may simply prefer to stick with the provider for their entire portfolio instead of mixing different fund houses.
Conveniently, AVES should be available at any major broker, including M1 Finance, which is the one I’m usually suggesting around here.
What do you think of AVES? Do you own it, AVEM, or DGS? Let me know in the comments.
Disclosure: I am long DGS in my own portfolio.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.
