Avantis US Small Cap Value ETF

AVUV

Market cap $18.4B

The Avantis US Small Cap Value ETF (AVUV) offers targeted exposure to US small cap value stocks, ideal amid historically high Shiller PE and value spreads. US SCV has historically outperformed large caps on a risk-adjusted basis, with current valuations suggesting strong potential for mean reversion. AVUV stands out among peers for its superior factor loadings, positive alpha generation, and competitive 0.25% expense ratio.

AVUV uses an active tilting quant-based strategy to invest in small caps that has generated alpha compared to the benchmark. It reflects value and profitability criteria, resulting in a well-fragmented distribution across the US small-cap segment. In a market once again showing positive momentum, both in forward EPS and price, at relatively competitive valuations.

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In yet another milestone for the ETF space, American Century Investments saw its suite surpass $75 billion in total AUM. The firm, which also offers ETFs under the Avantis Investors brand, offers ETFs like its largest, the Avantis U.S. Small Cap Value ETF (AVUV).

Value investing thrives on buying quality companies at below-average valuations, which mathematically leads to long-term outperformance. Avantis US Small Cap Value ETF offers reasonable diversification and lower-than-market P/E ratios, but its holdings are mostly average-quality, cyclical small caps with erratic earnings. While the fund has outperformed other small-cap ETFs since inception, its business quality doesn't justify expectations of outsized double-digit returns.

It's true that it's been a challenging year for U.S. small-cap ETFs. Using the iShares Russell 2000 ETF (IWM) as a benchmark for the category, we immediately see that 2025 has been marked by red ink.

I remain bullish on Avantis US Small Cap Value ETF due to consistent factor exposure, low fees, and credible management from Avantis. U.S. Small Cap Value ETFs like AVUV are still undervalued relative to history and broader equities, despite recent gains. I see opportunities for value investing in ETFs when their relative returns lag historical averages or other asset classes.

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