AVUS: This Actively Managed ETF Still Has To Prove Itself (NYSEARCA:AVUS) #NewsETFs

AVUS strategy

Avantis US Equity ETF (NYSEARCA:AVUS) is an actively managed ETF launched on 09/24/2019. It has 2282 holdings, a 30-day SEC yield of 1.22% and an expense ratio of 0.15%. Distributions are paid quarterly.

As described in the prospectus by Avantis Investorsthe fund puts

“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 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, the float, tax, and governance. The strategy definition offers a lot of flexibility to the fund’s managers. On the downside, it lacks the transparency of an index-based ETF. The portfolio turnover rate in the most recent fiscal year was only 1%.

Portfolio

The portfolio is invested almost exclusively in US companies (about 99% of asset value) across all size segments: about 55% in large and mega caps, 28% in mid-caps and 17% in small and micro-caps. Therefore, this article will use as a benchmark the S&P Total Market Index, represented by iShares Core S&P Total US Stock Market ETF (ITOT).

Information technology is the heaviest sector in the portfolio (22% of asset value), followed by financials (17%). Consumer discretionary and industrials are tied at 13%. Other sectors weigh no more than 9%. Compared to the broad market benchmark, AVUS underweights technology, healthcare and real estate. It overweights mostly financials, consumer discretionary, industrials, energy, and materials.

The top 10 issuers, listed in the next table, represent 23.5% of asset value and the largest position (Apple) weighs 4.73%. Portfolio diversification looks a bit better than for ITOT, where the top 3 names weigh about 6%.

Click to enlarge

* The two share series of Alphabet have been grouped for convenience.

Ratios: Portfolio123.

Fundamentals

AVUS is cheaper than the benchmark regarding valuation ratios, as reported in the next table. Additionally, it has a better cash flow growth rate.

Click to enlarge

Data: Fidelity.

Performance

Since inception, AVUS is marginally ahead of ITOT in total return (the gap is only 2.1% in 5 years), and it has underperformed the large cap benchmark SPDR® S&P 500 ETF Trust (SPY) by 4.8%.

Over the last 12 months, AVUS is 3.3% behind ITOT and 4.2% behind SPY.

Competitors

The next chart compares total returns of AVUS, three passive ETFs in different styles (value, quality, and growth) and two actively managed ETFs, listed below:

• SPDR Portfolio S&P 500 Value ETF (SPYV)
• iShares MSCI USA Quality Factor ETF (QUAL)
• SPDR Portfolio S&P 500 Growth ETF (SPYG)
• BlackRock US Equity Factor Rotation ETF (DYNF)
• Capital Group Core Equity ETF (CGUS).

The chart starts on 3/1/2022 to match all inception dates. AVUS is lagging the pack in this time frame.

It is second to last over the last 12 months:

Takeaway

Avantis US Equity ETF is an actively managed ETF focused on value and profitability. AVUS is better diversified across sectors and holdings than a broad market benchmark. Moreover, it shows better valuation and growth metrics. However, it has not brought significant excess returns since its inception. Over the last 2.5 years, it has underperformed passively managed ETFs in value, quality and growth styles, as well as some actively managed ETFs. AVUS track record is too short to assess the long-term potential of its strategy, but at this point it still has to prove itself.