Avantis Funds: what's so special about them?

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JSPECO9
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Avantis Funds: what's so special about them?

Post by JSPECO9 »

What's the big difference between Vanguard funds and Avantis Funds? I was listening to the Bogleheads podcast and heard the interview with Eduardo Repetto. He was saying all the right things but wanted to check with the Bogleheads first.

He was saying how index funds are great but a defect they have is that they have to rush to buy when there's a new inclusion to the index? Leading to buying overpriced stocks. And how Avantis funds don't do this?

What's the big difference between funds like VTI vs AVUS. Or AVUV (which I keep seeing here repeatedly) vs VIOV/VBR. Is there a Bogleheads consensus on Avantis funds? I only ask because I keep seeing them mentioned on this forum.
Ed 2
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Re: Avantis Funds: what's so special about them?

Post by Ed 2 »

JSPECO9 wrote: Fri Jul 01, 2022 10:03 pm What's the big difference between Vanguard funds and Avantis Funds? I was listening to the Bogleheads podcast and heard the interview with Eduardo Repetto. He was saying all the right things but wanted to check with the Bogleheads first.

He was saying how index funds are great but a defect they have is that they have to rush to buy when there's a new inclusion to the index? Leading to buying overpriced stocks. And how Avantis funds don't do this?

What's the big difference between funds like VTI vs AVUS. Or AVUV (which I keep seeing here repeatedly) vs VIOV/VBR. Is there a Bogleheads consensus on Avantis funds? I only ask because I keep seeing them mentioned on this forum.
Simple explanation. It’s like if your Toyota Corolla instead of four wheels have six.
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JSPECO9
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Re: Avantis Funds: what's so special about them?

Post by JSPECO9 »

Ed 2 wrote: Fri Jul 01, 2022 10:18 pm
JSPECO9 wrote: Fri Jul 01, 2022 10:03 pm What's the big difference between Vanguard funds and Avantis Funds? I was listening to the Bogleheads podcast and heard the interview with Eduardo Repetto. He was saying all the right things but wanted to check with the Bogleheads first.

He was saying how index funds are great but a defect they have is that they have to rush to buy when there's a new inclusion to the index? Leading to buying overpriced stocks. And how Avantis funds don't do this?

What's the big difference between funds like VTI vs AVUS. Or AVUV (which I keep seeing here repeatedly) vs VIOV/VBR. Is there a Bogleheads consensus on Avantis funds? I only ask because I keep seeing them mentioned on this forum.
Simple explanation. It’s like if your Toyota Corolla instead of four wheels have six.
Can you explain? Does this mean Avantis funds has something Vanguard funds don't have?

Thanks
123
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Re: Avantis Funds: what's so special about them?

Post by 123 »

Avantis Funds https://www.avantisinvestors.com/conten ... gKTyPD_BwE

I don't have an opinion about them except that since they all seem to have inception dates in 2019 or later they are likely very much in the stage of accumulating assets. While past performance is not an indicator of future results there isn't much past performance to evaluate how well they adhere to their objectives or if the funds will actually endure.
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saolafan
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Re: Avantis Funds: what's so special about them?

Post by saolafan »

My understanding is that they're accounting for momentum. It has historically been the case that winners stay winners for a few months, and losers stay losers for a few months. Theoretical explanations for momentum within the efficient market hypothesis are iffy (it's strange why prices take months to adjust if all information is supposed to be priced in), but it's still something we observe and can account for.

This matters less for something like VTI, which is a total market index and already owns everything, or VOO, because the S&P 500 doesn't change its index too often. It matters more for something like a value index that needs to constantly buy and sell. For example, META is down 50% in the last 6 months. A value index would be forced to add META as soon as its eligible for the index. Funds like Avantis will see that its momentum is negative, and wait for the price to stabilize. Historically, the waiting strategy has been successful.

I've viewed the primary difference as Avantis funds being tilted towards value stocks compared to their Vanguard counterparts. The momentum screen is a nice bonus.
Ed 2
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Re: Avantis Funds: what's so special about them?

Post by Ed 2 »

JSPECO9 wrote: Fri Jul 01, 2022 10:24 pm
Ed 2 wrote: Fri Jul 01, 2022 10:18 pm
JSPECO9 wrote: Fri Jul 01, 2022 10:03 pm What's the big difference between Vanguard funds and Avantis Funds? I was listening to the Bogleheads podcast and heard the interview with Eduardo Repetto. He was saying all the right things but wanted to check with the Bogleheads first.

He was saying how index funds are great but a defect they have is that they have to rush to buy when there's a new inclusion to the index? Leading to buying overpriced stocks. And how Avantis funds don't do this?

What's the big difference between funds like VTI vs AVUS. Or AVUV (which I keep seeing here repeatedly) vs VIOV/VBR. Is there a Bogleheads consensus on Avantis funds? I only ask because I keep seeing them mentioned on this forum.
Simple explanation. It’s like if your Toyota Corolla instead of four wheels have six.
Can you explain? Does this mean Avantis funds has something Vanguard funds don't have?

Thanks
They buy more small value companies than Vanguard Total Stock Market Index fund has , BUT their funds has higher expense ratio and high turnover ratio , plus I don’t see benefits investing in more small companies for the long term . This funds are more volatile and not everyone will handle such volatility. They claim they have “ scientific “ prove that over long term small value companies will outperform large and so on . To me personally I’d prefer go with the market and happy with results.
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
Morik
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Re: Avantis Funds: what's so special about them?

Post by Morik »

They apply screening for additional factors on top of a size and/or value tilt.
DFA also does this, and some indices do some screening (e.g., I've read that S&P 600 value does a profitability screen).

The main thing for me is that I can get Avantis funds without an advisor, whereas DFA funds require either an advisor or sometimes they are offered in some retirement plans.
123
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Re: Avantis Funds: what's so special about them?

Post by 123 »

Avantis Funds have been developed by two guys that were the brains behind DFA for many years: https://riabiz.com/a/2019/6/26/former-d ... year-round
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DanFFA
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Re: Avantis Funds: what's so special about them?

Post by DanFFA »

JSPECO9 wrote: Fri Jul 01, 2022 10:03 pm What's the big difference between Vanguard funds and Avantis Funds? I was listening to the Bogleheads podcast and heard the interview with Eduardo Repetto. He was saying all the right things but wanted to check with the Bogleheads first.

He was saying how index funds are great but a defect they have is that they have to rush to buy when there's a new inclusion to the index? Leading to buying overpriced stocks. And how Avantis funds don't do this?

What's the big difference between funds like VTI vs AVUS. Or AVUV (which I keep seeing here repeatedly) vs VIOV/VBR. Is there a Bogleheads consensus on Avantis funds? I only ask because I keep seeing them mentioned on this forum.
The differentiator in my mind between the factor portfolios of Vanguard and Avantis & Alpha Architect, DFA, etc. is that Vanguard is following indexes that largely track funds composed by committees. While this is largely passive, there is some active bent inherent to that committee (minor but it exists, think of how Tesla wasn't allowed in the S&P 500 for a long time and sometimes unprofitable companies take a long time to leave the S&P 500 for better or worse). On the other hand, the quant funds, while 'active' by legal classification for tax purposes, are grounded in systematic, rules-based trading methodologies with robust academic backing while also considering practical trading costs. They will not substantially change their methodology without robust academic and practical evidence that it offers a meaningful improvement to existing strategies.
Having a rules-based methodology and sticking to it is my personal definition of passive regardless of regulatory definition. Although, the regulatory definition of passive is following an index and sticking to regulatory rules and costs that come with that. While that sounds almost like the same thing, the extra costs and red tape of adhering to the regulatory passive definition end up getting in the way of providing investors with the best possible capturing of factor loading per $ invested.
That last part there, the best factor loading per $ invested, is what differs AVUV from VBR for instance. You can see a graphic below (provided by Alpha Architect's CEO Wes Gray in a tweet) showing numerous small-cap value funds (by name only) measured against one another. You'll note that VBR neither captures size nor as much value (as measured by Alpha Architect's preferred EBIT/TEV measure) as Avantis's AVUV and Dimensional Fund Advisor's DFAT. VBR is 2-3x the size! Designed for billions and billions, thus actually being more of a mid-cap fund with a teeny tiny value bent.

Quant funds like AVUV systematically do not invest in overpriced stocks because they check the present value of the fund and look for underpriced stocks with high profitability, strong momentum, etc. They check to make sure they're buying a stock more likely to appreciate in value than not over the long term. VTI just trusts the market cap to be correct and thus can falter more when there is an extended market downturn. For instance, YTD VTI is down -21.32%, and AVUS is down only -18.31%. At the same time, the worst downturn since AVUS's inception for AVUS was -24.54% in the quick rebound of March 2020 while it was the present -21.32% for VTI. Through all of that, AVUS is up (8.85%-7.45%) +1.4% CAGR over VTI since AVUS's inception.
Note: that last part referenced monthly returns via PortfolioVisualizer.

Image

Worth noting that Bogleheads do not themselves have a consensus on what is 'better'. A fantastic episode 200 of Rational Reminder featured Eugene Fama, a Nobel Prize winner that researched alongside Ken French and was credited with the establishment of the first Factor models. The Fama French 3-Factor, 4-Factor, and 5-Factor models. Eugene Fama's comments bring out many points worth mentioning. A summarization is below of a few points specifically relevant to this topic:

Many of the conclusions drawn from academic research are a lot less certain than many tout them as being. Even something as simple as stocks are expected to outperform bonds is very uncertain. The unexpected can easily drown out the expected in the future. Be humble with your expectations from any portfolio. Savings rate matters the most over the long run.
He also mentions you should start with the overall cap-weighted market and move away from it according to taste and that the value premium could disappear if people think it’s a profit opportunity. If your taste is 100% Market-cap weighted that's entirely a legitimate take. If your taste is 100% small cap value that's equally legitimate. Some may prefer more diversification relative to either approach. At the end of the day, it's up to your personal investor taste.
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Re: Avantis Funds: what's so special about them?

Post by ivgrivchuck »

There is nothing special about them.

They are well-managed, affordable, active, rule-based funds.

You can do just fine without them.

If factors work, they are a great choice. If factors don't work, you pay a little bit extra for nothing and get some more idiosyncratic risk.

The jury is still out there.
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Re: Avantis Funds: what's so special about them?

Post by Nathan Drake »

ivgrivchuck wrote: Fri Jul 01, 2022 11:45 pm There is nothing special about them.

They are well-managed, affordable, active, rule-based funds.

You can do just fine without them.

If factors work, they are a great choice. If factors don't work, you pay a little bit extra for nothing and get some more idiosyncratic risk.

The jury is still out there.
Even a 1% premium over MCW would be pretty special. DFA has shown that over the long term.

So the evidence that it can work is pretty compelling but requires a disciplined and patient strategy
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typical.investor
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Re: Avantis Funds: what's so special about them?

Post by typical.investor »

saolafan wrote: Fri Jul 01, 2022 10:32 pm My understanding is that they're accounting for momentum.

I've viewed the primary difference as Avantis funds being tilted towards value stocks compared to their Vanguard counterparts. The momentum screen is a nice bonus.
Where do you get that idea?

Per the prospectus dated 01/01/2022 for Avantis U.S. Small Cap Value ETF:
The fund seeks securities of companies that it expects to have higher returns by placing an enhanced emphasis on securities of companies with smaller market capitalizations and securities of companies with higher profitability and value characteristics.
I see no mention of a momentum strategy.
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Re: Avantis Funds: what's so special about them?

Post by Apathizer »

There are other threads discussing Avantis and DFA. Both are very similar. They're basically like index funds with slants for value, size, profitability, and conservative asset management. There's strong evidence these factors will likely lead to higher returns. I would argue this provides important diversification relative to a cap weight index which is about 75% large cap.
ivgrivchuck wrote: Fri Jul 01, 2022 11:45 pm There is nothing special about them.

They are well-managed, affordable, active, rule-based funds.

You can do just fine without them.

If factors work, they are a great choice. If factors don't work, you pay a little bit extra for nothing and get some more idiosyncratic risk.

The jury is still out there.
I know they don't have much history, but so far Avantis funds have beaten a cap weight total market index by a little more than 1% annually. So far they've performed about as well as I hoped.
https://www.portfoliovisualizer.com/bac ... tion4_2=15
Last edited by Apathizer on Sat Jul 02, 2022 2:06 am, edited 1 time in total.
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Northern Flicker
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Re: Avantis Funds: what's so special about them?

Post by Northern Flicker »

DanFFA wrote: The differentiator in my mind between the factor portfolios of Vanguard and Avantis & Alpha Architect, DFA, etc. is that Vanguard is following indexes that largely track funds composed by committees. While this is largely passive, there is some active bent inherent to that committee (minor but it exists, think of how Tesla wasn't allowed in the S&P 500 for a long time and sometimes unprofitable companies take a long time to leave the S&P 500 for better or worse). On the other hand, the quant funds, while 'active' by legal classification for tax purposes, are grounded in systematic, rules-based trading methodologies with robust academic backing while also considering practical trading costs.
You are describing the S&P500, and it is not really a correct description of that. The committee is not making active stock-picking decisions. But rather than derail the thread by diving into that topic, I’ll mention that this is not the process CRSP uses. It is a rule-based process with randomized bands to make index changes unpredictable. VBR does not have the deep factor loadings that AVUV has, but it tracks a well managed index.

I think the benefit of AVUV or VFVA is that they can reconstitute at any time instead of on a quarterly schedule. Using your definition, that could be construed as a very minor active decision that VBR lacks, but I don’t think it matters.

The main benefits of VBR are lower cost and the transparency of tracking an index managed by a 3rd party.
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Apathizer
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Re: Avantis Funds: what's so special about them?

Post by Apathizer »

Northern Flicker wrote: Sat Jul 02, 2022 1:45 am
DanFFA wrote: The differentiator in my mind between the factor portfolios of Vanguard and Avantis & Alpha Architect, DFA, etc. is that Vanguard is following indexes that largely track funds composed by committees. While this is largely passive, there is some active bent inherent to that committee (minor but it exists, think of how Tesla wasn't allowed in the S&P 500 for a long time and sometimes unprofitable companies take a long time to leave the S&P 500 for better or worse). On the other hand, the quant funds, while 'active' by legal classification for tax purposes, are grounded in systematic, rules-based trading methodologies with robust academic backing while also considering practical trading costs.
You are describing the S&P500, and it is not really a correct description of that. The committee is not making active stock-picking decisions. But rather than derail the thread by diving into that topic, I’ll mention that this is not the process CRSP uses. It is a rule-based process with randomized bands to make index changes unpredictable. VBR does not have the deep factor loadings that AVUV has, but it tracks a well managed index.

I think the benefit of AVUV or VFVA is that they can reconstitute at any time instead of on a quarterly schedule. Using your definition, that could be construed as a very minor active decision that VBR lacks, but I don’t think it matters.

The main benefits of VBR are lower cost and the transparency of tracking an index managed by a 3rd party.
I know it doesn't have much history, but so far AVUV has absolutely spanked VBR. AVUV has an annual return of 11.28% while VBR's is 5.57% for the same time period. So far AVUV hasn't been more volatile either.

In addition to the differences you mention, AVUV has a smaller, deeper value focus. This could lead to more long-term volatility, but it's also likely to have significantly better returns.
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Re: Avantis Funds: what's so special about them?

Post by ivgrivchuck »

Nathan Drake wrote: Sat Jul 02, 2022 1:01 am
ivgrivchuck wrote: Fri Jul 01, 2022 11:45 pm There is nothing special about them.

They are well-managed, affordable, active, rule-based funds.

You can do just fine without them.

If factors work, they are a great choice. If factors don't work, you pay a little bit extra for nothing and get some more idiosyncratic risk.

The jury is still out there.
Even a 1% premium over MCW would be pretty special. DFA has shown that over the long term.

So the evidence that it can work is pretty compelling but requires a disciplined and patient strategy
I think that around 1% premium is expected. You buy riskier stocks, you expect higher expected return. Otherwise nobody would buy riskier stocks...

The real question is that can you get higher risk-adjusted returns?

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Looking at the sharpe ratios the answer so far seems to be "no".
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typical.investor
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Re: Avantis Funds: what's so special about them?

Post by typical.investor »

Apathizer wrote: Sat Jul 02, 2022 1:35 am There are other threads discussing Avantis and DFA. Both are very similar. They're basically like index funds with slants for value, size, profitability, and conservative asset management. There's strong evidence these factors will likely lead to higher returns.
ivgrivchuck wrote: Fri Jul 01, 2022 11:45 pm There is nothing special about them.

They are well-managed, affordable, active, rule-based funds.

You can do just fine without them.

If factors work, they are a great choice. If factors don't work, you pay a little bit extra for nothing and get some more idiosyncratic risk.

The jury is still out there.
I know they don't have much history, but so far Avantis funds have beaten a cap weight total market index by a little more than 1% annually. So far they've performed about as well as I hoped.
https://www.portfoliovisualizer.com/bac ... tion4_2=15
Schwab's Fundamental Indexes (used in the Intelligent Portferolio robo service) did a little better. Both the Avantis and Fundamental Indexes have a value tilt which did well then. It's likely that Avantis will under-perform when value does just like other value funds.

https://www.portfoliovisualizer.com/bac ... bol13=AVUS

In any case, I don't find Avantis so special as I am not so big into book to market (price) measures. Per Advantis 'The portfolio managers define “value characteristics” mainly as adjusted book/price ratio (though other price to fundamental ratios may be considered)'. I know they have a profitability screen which will correct for the b/m deficiencies but still ... b/m is misleading as contributed capital boosts the book value but doesn't actually predict good performance. Sure, their profitability screen will counter that, but book value measures tend to choose by industries which naturally have a large book value. I am not exactly sure how they will counteract that sector tilt tendency using book value but imagine they will.

Fundamental indexes tend to be sector neutral with the caveat that it means they are not truly a value index as they will hold growth companies whose adjusted sales, retained cash flows, and dividends/buybacks are relatively attractive.
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Re: Avantis Funds: what's so special about them?

Post by ivgrivchuck »

Apathizer wrote: Sat Jul 02, 2022 1:35 am There are other threads discussing Avantis and DFA. Both are very similar. They're basically like index funds with slants for value, size, profitability, and conservative asset management. There's strong evidence these factors will likely lead to higher returns. I would argue this provides important diversification relative to a cap weight index which is about 75% large cap.
I wouldn't call the evidence "strong". These are a bunch of data mined factors which showed a positive correlation to returns in the past. A lot of strategies have been generated where backtesting looked great, but the actual results were awful. I view this more as a gamble with decent odds.

I agree that these funds offer some diversification benefits. The flip side is that they tend to over concentrate into a few sectors (with low P/B), which increases idiosyncratic risk.
I know they don't have much history, but so far Avantis funds have beaten a cap weight total market index by a little more than 1% annually. So far they've performed about as well as I hoped.
https://www.portfoliovisualizer.com/bac ... tion4_2=15
The history is so short that it doesn't mean anything.

But I think using DFA funds for comparison purposes makes more sense (DFA and Avantis are trying to do mostly the same thing):
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Last edited by ivgrivchuck on Sat Jul 02, 2022 2:37 am, edited 1 time in total.
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Re: Avantis Funds: what's so special about them?

Post by Apathizer »

ivgrivchuck wrote: Sat Jul 02, 2022 2:19 am
Nathan Drake wrote: Sat Jul 02, 2022 1:01 am
ivgrivchuck wrote: Fri Jul 01, 2022 11:45 pm There is nothing special about them.

They are well-managed, affordable, active, rule-based funds.

You can do just fine without them.

If factors work, they are a great choice. If factors don't work, you pay a little bit extra for nothing and get some more idiosyncratic risk.

The jury is still out there.
Even a 1% premium over MCW would be pretty special. DFA has shown that over the long term.

So the evidence that it can work is pretty compelling but requires a disciplined and patient strategy
I think that around 1% premium is expected. You buy riskier stocks, you expect higher expected return. Otherwise nobody would buy riskier stocks...

The real question is that can you get higher risk-adjusted returns?

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Looking at the sharpe ratios the answer so far seems to be "no".
On their own SV stocks are riskier, but since the various factors seem to have little or no correlation, incorporating all of them in a portfolio will likely improve risk-adjusted returns, though exactly how much is just educated speculation.

That said, simple cap-weight index funds meet the needs of most if not all investors just fine.
https://www.portfoliovisualizer.com/bac ... tion3_1=20
ivgrivchuck wrote: Sat Jul 02, 2022 2:34 am I wouldn't call the evidence "strong". These are a bunch of data mined factors which showed a positive correlation to returns in the past. A lot of strategies have been generated where backtesting looked great, but the actual results were awful. I view this more as a gamble with decent odds.

I agree that these funds offer some diversification benefits. The flip side is that they tend to over concentrate into a few sectors (with low P/B), which increases idiosyncratic risk.
Fair points, though looking at the Avantis and DFA holdings they don't seem to drift too far from the sector weights of a market cap weight index. You're right though, factor slants make some degree of sector drift inevitable.

There's also concern that as more funds employ a factor slant the potential return benefits could diminish as these strategies become more widespread and the total market incorporates them. This seems to be another benefit of simple cap weight index funds.

So yes, it's a bit of a gamble, but to me it seems reasonably low-risk, with good odds of improving total return.
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Re: Avantis Funds: what's so special about them?

Post by Gaston »

JSPECO9 wrote: Fri Jul 01, 2022 10:03 pm What's the big difference between Vanguard funds and Avantis Funds?
Just to throw in another viewpoint: Fama and French did some research back in the 90's, identifying three (then later five) factors that explain why certain segments of the market historically outperformed the market as a whole. Value, profitability and momentum are examples of these factors. Based on this and similar research, a number of investment companies launched products to capture these factors, in the hope their products will outperform the market going forward.

To look at two such products, in 2010 Vanguard launched VIOV to track the S&P Small-Cap 600 Value Index. VIOV, as such, hopes to capture the small cap value factor, and is arguably the most value-y ETF that Vanguard offers (although some might say that VFVA is the most value-y, and they might be correct). VIOV has an ER of 0.15% and had a 2021 turnover of 18%.

In 2019 Avantis launched AVUV, which also has a strong focus on small cap value. In addition, AVUV tries to capture the profitability factor by applying a screen to its stock selection. In other words, AVUV attempts to select value-y small cap stocks that also possess good profitability-to-book ratios. AVUV has an ER of 0.25% and had a 2021 turnover of 22%.

Looking forward, it's impossible to know whether the French-Fama factors will deliver outperformance. And if they do, it's likewise impossible to know whether you will capture more of this outperformance with a Vanguard or an Avantis ETF (or an ETF from some other company). As others have noted, we'll have to check back in 30 years.
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Re: Avantis Funds: what's so special about them?

Post by Taylor Larimore »

JSPECO9 wrote: Fri Jul 01, 2022 10:03 pm What's the big difference between Vanguard funds and Avantis Funds? I was listening to the Bogleheads podcast and heard the interview with Eduardo Repetto. He was saying all the right things but wanted to check with the Bogleheads first.

He was saying how index funds are great but a defect they have is that they have to rush to buy when there's a new inclusion to the index? Leading to buying overpriced stocks. And how Avantis funds don't do this?

What's the big difference between funds like VTI vs AVUS. Or AVUV (which I keep seeing here repeatedly) vs VIOV/VBR. Is there a Bogleheads consensus on Avantis funds? I only ask because I keep seeing them mentioned on this forum.
JSPEC09:

I am glad you "wanted to check with the Bogleheads first."

I believe Avantis funds are all managed funds. If so, they are unlikely to outperform (risk and return) over long periods. Read this:

2021 SPIVA Report.

This is what experts say about indexing:

viewtopic.php?f=10&t=156425

Consider the many benefits of The Three-Fund (indexed) Portfolio

Best wishes.
Taylor
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Re: Avantis Funds: what's so special about them?

Post by Ed 2 »

It seams ones an a while Wall Street comes out with new shiny objects . It’s up to you to go simple and rational way to invest or try to “ beat the market “. I am not arguing that Avantis doing something wrong or ripping off investors. As above post this are actively traded funds and this is your choice. A year ago this humble forum was flooded with discussion about ARK funds , some time ago about crypto , before than about investing in gold ....
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Re: Avantis Funds: what's so special about them?

Post by JSPECO9 »

Thank you guys. I'm out on Avantis. Will stick to my Vanguard funds.
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Re: Avantis Funds: what's so special about them?

Post by nedsaid »

Avantis Funds are actively managed but they feature patient trading, low turnover, and lower expense ratios. So these type of funds have a better chance of outperforming the broad indexes like US Total Stock Market Index and the S&P 500 compared to more traditional active funds. Avantis and DFA are the future of active management. Still no guarantees.
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Re: Avantis Funds: what's so special about them?

Post by Apathizer »

nedsaid wrote: Sat Jul 02, 2022 11:31 am Avantis Funds are actively managed but they feature patient trading, low turnover, and lower expense ratios. So these type of funds have a better chance of outperforming the broad indexes like US Total Stock Market Index and the S&P 500 compared to more traditional active funds. Avantis and DFA are the future of active management. Still no guarantees.
Exactly. There's a passive-active spectrum. While Avantis and DFA are actively managed, they aren't typical stock-picking active management, but structured like index funds with factor tweaks. To me they're compatible with index investing, but for investors more comfortable with standard index funds they're fine.
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Re: Avantis Funds: what's so special about them?

Post by nedsaid »

Apathizer wrote: Sat Jul 02, 2022 11:55 am
nedsaid wrote: Sat Jul 02, 2022 11:31 am Avantis Funds are actively managed but they feature patient trading, low turnover, and lower expense ratios. So these type of funds have a better chance of outperforming the broad indexes like US Total Stock Market Index and the S&P 500 compared to more traditional active funds. Avantis and DFA are the future of active management. Still no guarantees.
Exactly. While there's a spectrum of active management. While Avantis and DFA are actively managed, they aren't typical stock-picking active management, but structured like index funds with factor tweaks. To me they're compatible with index investing, but for investors more comfortable with standard index funds they're fine.
I would classify DFA and Avantis as almost Passive. Since their expenses and turnover are low, I couldn't rate these as Active funds in the traditional sense so I suppose I would rate them also as almost Active. Somewhere in the continuum between Active and passive. I believe in the continuum.
Last edited by nedsaid on Sat Jul 02, 2022 12:37 pm, edited 1 time in total.
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Re: Avantis Funds: what's so special about them?

Post by roth evangelist »

It's simple. If you want to invest purely according to market cap, stick with Vanguard. If you want to introduce the five-factor model, add Avantis funds.
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Re: Avantis Funds: what's so special about them?

Post by saolafan »

typical.investor wrote: Sat Jul 02, 2022 1:32 am
saolafan wrote: Fri Jul 01, 2022 10:32 pm My understanding is that they're accounting for momentum.

I've viewed the primary difference as Avantis funds being tilted towards value stocks compared to their Vanguard counterparts. The momentum screen is a nice bonus.
Where do you get that idea?

Per the prospectus dated 01/01/2022 for Avantis U.S. Small Cap Value ETF:
The fund seeks securities of companies that it expects to have higher returns by placing an enhanced emphasis on securities of companies with smaller market capitalizations and securities of companies with higher profitability and value characteristics.
I see no mention of a momentum strategy.
Also from the AVUV prospectus:
"The portfolio managers may also consider other factors when selecting a security, including industry classification, the past performance of the security relative to other securities, its liquidity, its float, and tax, governance or cost considerations, among others."

" When determining whether to dispose of a security, the portfolio managers will also consider, among other things, relative past performance, costs, and taxes."
The mentions of relative past performance are what I called momentum.

In a whitepaper from Avantis in April 2021, they talk about incorporating momentum into their strategies. Admittedly, it doesn't say this specifically about AVUV.
We seek to integrate momentum into our strategies by balancing the expected return benefits with the implementation costs.

"Momentum can be managed effectively using a variety of different ranking periods (e.g., previous 12-month or previous three-month performance). We use two complementary measures in an effort to robustly manage momentum in our strategies."
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Re: Avantis Funds: what's so special about them?

Post by Northern Flicker »

If they don’t vary the momentum evaluation period, the fund would be susceptible to front-running of changes due to momentum.
Apathizer wrote: I know it doesn't have much history, but so far AVUV has absolutely spanked VBR. AVUV has an annual return of 11.28% while VBR's is 5.57% for the same time period. So far AVUV hasn't been more volatile either.
AVUV has been significantly more volatile and had significantly deeper drawdowns than VBR so far. It certainly is a riskier fund, but the deeper factor exposures mean you need less of it to obtain a given level of portfolio factor exposures.
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Re: Avantis Funds: what's so special about them?

Post by Apathizer »

Northern Flicker wrote: Sat Jul 02, 2022 1:49 pm If they don’t vary the momentum evaluation period, the fund would be susceptible to front-running of changes due to momentum.
Apathizer wrote: I know it doesn't have much history, but so far AVUV has absolutely spanked VBR. AVUV has an annual return of 11.28% while VBR's is 5.57% for the same time period. So far AVUV hasn't been more volatile either.
AVUV has been significantly more volatile and had significantly deeper drawdowns than VBR so far. It certainly is a riskier fund, but the deeper factor exposures mean you need less of it to obtain a given level of portfolio factor exposures.
I was thinking in more year to year returns. In 3 years AVUV has had one year (2021) of exceptional returns compared to VBR. The other two years there's been no significant difference.

That's what I expect. When SV does well AVUV will probably significantly out-perform VBR. When SV does poorly AVUV might do a little worse, but the difference will probably be modest.
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Re: Avantis Funds: what's so special about them?

Post by Northern Flicker »

Ed 2 wrote: Sat Jul 02, 2022 10:28 am It seams ones an a while Wall Street comes out with new shiny objects . It’s up to you to go simple and rational way to invest or try to “ beat the market “. I am not arguing that Avantis doing something wrong or ripping off investors. As above post this are actively traded funds and this is your choice. A year ago this humble forum was flooded with discussion about ARK funds , some time ago about crypto , before than about investing in gold ....
Factor strategies are based on research on systematic risk factors of stocks. They are not analogous to crypto or ARK funds that make concentrated sector bets and managed concentrated active portfolios.

What is true is that the finance industry marketing machines regularly push what has been hot recently, encouraging listeners/readers to go look up the product to confirm how great it is. They rarely say that the made the recommendation before the hot runup, because generally they didn’t do so.

Factor investing is not a short-term endeavor. It requires the resolve to stick with it through long periods of underperformance. I do think the benefits of factor investing tend to be a bit oversold by factor proponents.
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Re: Avantis Funds: what's so special about them?

Post by Northern Flicker »

Apathizer wrote: Sat Jul 02, 2022 2:01 pm
Northern Flicker wrote: Sat Jul 02, 2022 1:49 pm AVUV has been significantly more volatile and had significantly deeper drawdowns than VBR so far. It certainly is a riskier fund, but the deeper factor exposures mean you need less of it to obtain a given level of portfolio factor exposures.
I was thinking in more year to year returns. In 3 years AVUV has had one year (2021) of exceptional returns compared to VBR. The other two years there's been no significant difference.
You can see the comparison of return, volatility, and drawdown here.

https://www.portfoliovisualizer.com/bac ... ion3_3=100

Mid caps have been hit hard in 2022, which certainly led to VBR taking a hit.
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Re: Avantis Funds: what's so special about them?

Post by Apathizer »

Northern Flicker wrote: Sat Jul 02, 2022 2:01 pmFactor investing is not a short-term endeavor. It requires the resolve to stick with it through long periods of underperformance. I do think the benefits of factor investing tend to be a bit oversold by factor proponents.
While factors can under-perform for long periods, historically so can the market. Since diversified factor slants add more potential return sources, I would argue this reduces the likelihood of under-performance for any given period. It's easy to forget that since the market factor has done so well over the most of the last decade until the last couple years.

This is actually my motivation for having moderate factor slants. I'm less interested in total return than in consistency and overall diversification.
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Re: Avantis Funds: what's so special about them?

Post by Apathizer »

Northern Flicker wrote: Sat Jul 02, 2022 2:08 pm
Apathizer wrote: Sat Jul 02, 2022 2:01 pm
Northern Flicker wrote: Sat Jul 02, 2022 1:49 pm AVUV has been significantly more volatile and had significantly deeper drawdowns than VBR so far. It certainly is a riskier fund, but the deeper factor exposures mean you need less of it to obtain a given level of portfolio factor exposures.
I was thinking in more year to year returns. In 3 years AVUV has had one year (2021) of exceptional returns compared to VBR. The other two years there's been no significant difference.
You can see the comparison of return, volatility, and drawdown here.

https://www.portfoliovisualizer.com/bac ... ion3_3=100

Mid caps have been hit hard in 2022, which certainly led to VBR taking a hit.
While AVUV is a little more volatile, again the difference seems fairly modest. It's my understanding the size/value premium is more pronounced in small caps, so AVUV seems likely to out-perform VBR in the long-term.
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Re: Avantis Funds: what's so special about them?

Post by Ed 2 »

Northern Flicker wrote: Sat Jul 02, 2022 2:01 pm
Ed 2 wrote: Sat Jul 02, 2022 10:28 am It seams ones an a while Wall Street comes out with new shiny objects . It’s up to you to go simple and rational way to invest or try to “ beat the market “. I am not arguing that Avantis doing something wrong or ripping off investors. As above post this are actively traded funds and this is your choice. A year ago this humble forum was flooded with discussion about ARK funds , some time ago about crypto , before than about investing in gold ....
Factor strategies are based on research on systematic risk factors of stocks. They are not analogous to crypto or ARK funds that make concentrated sector bets and managed concentrated active portfolios.

What is true is that the finance industry marketing machines regularly push what has been hot recently, encouraging listeners/readers to go look up the product to confirm how great it is. They rarely say that the made the recommendation before the hot runup, because generally they didn’t do so.

Factor investing is not a short-term endeavor. It requires the resolve to stick with it through long periods of underperformance. I do think the benefits of factor investing tend to be a bit oversold by factor proponents.
Yes, yes and yes! I agree with you . The only my personal belief that most of us are humans with tendencies to make wrong investments decision wrong time. This funds are high volatility funds , majority can’t stand high volatility for a long time . Plus all this” scientific “ research makes me a little smile. There are many unpredictable things during investment period . In the beginning of this year majority of vanguard investors were predicting many things what may come , only small minority was worried about geopolitics and it’s important on the market.
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Re: Avantis Funds: what's so special about them?

Post by Bill Bernstein »

Both DFA and Avantis funds are reasonable choices for those who want small/value tilt. To paraphrase a previous poster, if tilt works out going forward, you're a genius, and if not, expect a shower of I Told You Sos.

You only need an advisor to buy a DFA open-end fund; pretty much every asset class you might want from them (except for EM small value) is available from them in ETF form; simply delete the "x" from the end of the fund you're looking for, and voila (ie, DISVX/DISV).

Several, but not all, of the Avantis funds also have open-end class funds.

The Avantis funds are all several bp cheaper than the DFA offerings. That's not an accident, since the former is a breakaway from the latter.

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Re: Avantis Funds: what's so special about them?

Post by Apathizer »

Ed 2 wrote: Sat Jul 02, 2022 2:19 pm
Northern Flicker wrote: Sat Jul 02, 2022 2:01 pm
Ed 2 wrote: Sat Jul 02, 2022 10:28 am It seams ones an a while Wall Street comes out with new shiny objects . It’s up to you to go simple and rational way to invest or try to “ beat the market “. I am not arguing that Avantis doing something wrong or ripping off investors. As above post this are actively traded funds and this is your choice. A year ago this humble forum was flooded with discussion about ARK funds , some time ago about crypto , before than about investing in gold ....
Factor strategies are based on research on systematic risk factors of stocks. They are not analogous to crypto or ARK funds that make concentrated sector bets and managed concentrated active portfolios.

What is true is that the finance industry marketing machines regularly push what has been hot recently, encouraging listeners/readers to go look up the product to confirm how great it is. They rarely say that the made the recommendation before the hot runup, because generally they didn’t do so.

Factor investing is not a short-term endeavor. It requires the resolve to stick with it through long periods of underperformance. I do think the benefits of factor investing tend to be a bit oversold by factor proponents.
Yes, yes and yes! I agree with you . The only my personal belief that most of us are humans with tendencies to make wrong investments decision wrong time. This funds are high volatility funds , majority can’t stand high volatility for a long time . Plus all this” scientific “ research makes me a little smile. There are many unpredictable things during investment period . In the beginning of this year majority of vanguard investors were predicting many things what may come , only small minority was worried about geopolitics and it’s important on the market.
They only might be more volatile in the very short-term compared to a cap weight index. Remember, the market is a factor itself, so in terms of return sources you're actually more diversified with light-moderate factor slant. This seems likely to reduce overall risk-adjusted returns by adding more potential return sources.

For instance, if you compare the year to year returns of AVUS and VTI, I would argue AVUS has been more consistent. In 2020 VTI out-performed since the pandemic lock-downs benefited large growth companies that are heavily weighted in VTI. AVUS still did just fine since it has a fair amount of market exposure. For the last two years as large growth has tanked, AVUS has out-performed VTI.

Again, this is exactly what I was hoping for. I don't expect factors to always out-perform the market, but improve consistency.
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Re: Avantis Funds: what's so special about them?

Post by typical.investor »

saolafan wrote: Sat Jul 02, 2022 12:52 pm
typical.investor wrote: Sat Jul 02, 2022 1:32 am
saolafan wrote: Fri Jul 01, 2022 10:32 pm My understanding is that they're accounting for momentum.

I've viewed the primary difference as Avantis funds being tilted towards value stocks compared to their Vanguard counterparts. The momentum screen is a nice bonus.
Where do you get that idea?

Per the prospectus dated 01/01/2022 for Avantis U.S. Small Cap Value ETF:
The fund seeks securities of companies that it expects to have higher returns by placing an enhanced emphasis on securities of companies with smaller market capitalizations and securities of companies with higher profitability and value characteristics.
I see no mention of a momentum strategy.
Also from the AVUV prospectus:
"The portfolio managers may also consider other factors when selecting a security, including industry classification, the past performance of the security relative to other securities, its liquidity, its float, and tax, governance or cost considerations, among others."

" When determining whether to dispose of a security, the portfolio managers will also consider, among other things, relative past performance, costs, and taxes."
OK, but why do they explicitly mention value and profitability but not momentum?

I do know that DFA and Avantis are concerned about patient trading. I suspect that has to do with their patient trading strategy.

Furthermore, how does one run a momentum strategy that only involves disposing of securities. It would seem that a momentum strategy would necessarily involve buying too.

I do not see that in their syllabus.

saolafan wrote: Sat Jul 02, 2022 12:52 pm The mentions of relative past performance are what I called momentum.
Is timing the sales of a security really momentum though? Wouldn't you also want to rotate into the stocks starting to show good momentum. How much of the momentum premium would a strategy that only uses momentum when disposing a security actually capture?

I don't think this is known and blanket statements that Avantis targets momentum which is the factor with the largest premiums is misleading and probably just wishful thinking.
saolafan wrote: Sat Jul 02, 2022 12:52 pm In a whitepaper from Avantis in April 2021, they talk about incorporating momentum into their strategies. Admittedly, it doesn't say this specifically about AVUV.
We seek to integrate momentum into our strategies by balancing the expected return benefits with the implementation costs.

"Momentum can be managed effectively using a variety of different ranking periods (e.g., previous 12-month or previous three-month performance). We use two complementary measures in an effort to robustly manage momentum in our strategies."
But yeah, you are right in that they do consider momentum in their trading (the paper you cited was a good read)...
We use two complementary measures
in an effort to robustly manage momentum in our strategies.

The first approach delays the purchase of stocks with large negative
six-month returns and avoids the sale of stocks with large positive
six-month returns. This approach enables us to pursue momentum
without an expected increase in turnover.

We complement the six-month momentum screen by lagging
price in our book-to-market ratio, similar to how the HML factor is
computed in many Fama/French studies. Strategies using book-tomarket ratios with current price in the denominator cause a stock to
be eligible for purchase the moment a meaningful price decrease
causes it to become “value,” which also creates exposure to negative
momentum. An adjusted book-to-market ratio that lags price by
three months helps mitigate these negative effects. Conversely,
the same price lag delays the sale of securities that are increasing
in price and exhibiting upward momentum. We believe combining
the two momentum techniques improves the expected effects of
momentum on the strategy without incurring additional turnover.
So it seems like their 'momentum' strategy is basically a patient trading approach. DFA does that as well don't they.

The Schwab Fundamental indexed rebalance in quarterly tranches.

In the end, I wonder how much value stocks move together. I mean inflation is higher, rates are higher, and future earnings in growth stocks are worth less. So value is doing better. It kinda seems like maybe momentum in individual value stocks is secondary relative to growth/value momentum overall.
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Re: Avantis Funds: what's so special about them?

Post by phantom0308 »

Avantis was notable because they allowed individual investors to invest like dimensional funds without having to use a dimensional approved financial advisor. They came out a couple years before Dimensional started releasing ETFs and still have lower expense ratios. The Rational Reminder podcast/forum and community related to Ben Felix’s YouTube videos are probably the biggest advocates for the approach.

Dimensional and Avantis are notable for their investments that target risk factors based on the FamaFrench 5 factor model.

There’s a lot of material online about this and if it interests you then Avantis is a good fund provider. If not then they aren’t for you. I personally have the majority of my funds in Vanguard with a smaller percentage in Avantis’s Small Cap Value (US, Intl, EM) funds.
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Re: Avantis Funds: what's so special about them?

Post by grabiner »

DanFFA wrote: Fri Jul 01, 2022 11:06 pm The differentiator in my mind between the factor portfolios of Vanguard and Avantis & Alpha Architect, DFA, etc. is that Vanguard is following indexes that largely track funds composed by committees. While this is largely passive, there is some active bent inherent to that committee (minor but it exists, think of how Tesla wasn't allowed in the S&P 500 for a long time and sometimes unprofitable companies take a long time to leave the S&P 500 for better or worse). On the other hand, the quant funds, while 'active' by legal classification for tax purposes, are grounded in systematic, rules-based trading methodologies with robust academic backing while also considering practical trading costs.
Vanguard has some of its own factor funds. You can get US value factor exposure at a slightly lower cost with VFVA (0.13% expenses) rather than a 50-50 split of AVLV/AVUV (0.15% and 0.25%). This is my choice for US stock. I use Avantis for foreign stock because Vanguard doesn't have a value ETF option there at all.
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Re: Avantis Funds: what's so special about them?

Post by Northern Flicker »

Apathizer wrote: Sat Jul 02, 2022 2:18 pm
While AVUV is a little more volatile, again the difference seems fairly modest. It's my understanding the size/value premium is more pronounced in small caps, so AVUV seems likely to out-perform VBR in the long-term.
Certainly the deeper factor exposures give AVUV a higher expected return. Unless you have a heavy tilt, portfolio size and value exposures can be set by how much AVUV or VBR one incorporates into a portfolio. Where there will be a difference is that AVUV includes momentum and quality screens. I don’t think that is true of the index tracked by VBR, certainly with respect to momentum. The index tracked by VBR may have an investability screen that functions as a weak quality screen.

VBR/VSIAX/VISVX has tracked three different indices:

**S&P SmallCap 600 Value Index (formerly known as the S&P SmallCap 600/Barra Value Index) through May 16, 2003; MSCI US Small Cap Value Index through April 16, 2013; CRSP US Small Cap Value Index thereafter.
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Re: Avantis Funds: what's so special about them?

Post by saolafan »

typical.investor wrote: Sat Jul 02, 2022 4:13 pm
I agree that it's misleading to say that Avantis targets momentum. I wasn't aware that patient trading is more accurate term for what they do. DFA does do something similar.
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Re: Avantis Funds: what's so special about them?

Post by typical.investor »

saolafan wrote: Sat Jul 02, 2022 5:10 pm
typical.investor wrote: Sat Jul 02, 2022 4:13 pm
I agree that it's misleading to say that Avantis targets momentum. I wasn't aware that patient trading is more accurate term for what they do. DFA does do something similar.
"a rose by any other name" .... I wrote the 'misleading' part before I read the pdf you linked. They clearly do target some momentum somewhat and as to whether 'patient trading' is the best name or not ... whatever.

My real comment is to what degree can a momentum or patient trading strategy (call it what you will) capture the large promised momentum strategy if the strategy isn't increasing turnover. I understand the theoretical returns from momentum to be due to the turnover.

Anyway, the pdf you posted was the best description of their process I have seen. I think they do have a good process - not buying stocks with negative momentum and holding on to stock with positive. I mean so if you call that a momentum strategy... I guess it is but it's not the type we often see the juicy expected returns quoted for.
Last edited by typical.investor on Sat Jul 02, 2022 6:57 pm, edited 1 time in total.
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Re: Avantis Funds: what's so special about them?

Post by DaufuskieNate »

A factor regression confirms that they are not capturing a momentum premium. OTOH, the strategies employed by both Avantis and DFA do seem to avoid the negative momentum exposure that can often be seen in value funds.
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Re: Avantis Funds: what's so special about them?

Post by typical.investor »

DaufuskieNate wrote: Sat Jul 02, 2022 6:52 pm A factor regression confirms that they are not capturing a momentum premium. OTOH, the strategies employed by both Avantis and DFA do seem to avoid the negative momentum exposure that can often be seen in value funds.
To be honest, I've gotten a bit cynical of factor regressions.

First, the returned values entirely depend on how you define the factors. So maybe they are avoiding negative momentum exposure by one definition and not by another.

Second, regressions are too fuzzy with too much in 'unexplained' which shows up as alpha.

Using the Fama-French definition and a four factor model, AVUV in it's life has more negative momentum than the fundamental indexes which have been described here as having less negative momentum than a typical value fund but also more negative momentum than VBR which should be pretty typical.

Momentum [Oct 2019 - Jun 2022 life of AVUV]
Avantis U.S. Small Cap Value ETF AVUV -0.08
Schwab Fundamental US Small Company ETF FNDA -0.03
Vanguard Small-Cap Value ETF VBR -0.07
Schwab US Small-Cap ETF SCHA 0.00
Vanguard Small-Cap ETF VB 0.00

Of course this is a short time to judge.

AVUV has done much better in terms of returns with it's deeper value exposure in a time favorable to value. Maybe we should expect more negative mom with with deeper value and conclude that the mom filter on AVUV is doing well.

To me, it's all fuzzy and over time and various market conditions, who knows ...

AVUS has less value exposure and less negative mom, but hasn't done as well as the fundamental indexes over its life.

If I extend back as far as I can with the fundamental indexes, I conclude I don't like DFA methodology. As to how much Avantis resembles it, or how much this is to value performance over the period, again I don't know.

CAGR Apr 2007 - Jun 2022

8.67% CAGR
SFSNX Schwab Fundamental US Small Company Idx 13.00%
SFLNX Schwab Fundamental US Large Company Idx 87.00%

8.69% CAGR
VTI Vanguard Total Stock Market ETF 100.00%

6.73% CAGR
DFSVX DFA US Small Cap Value I 13.00%
DFLVX DFA US Large Cap Value I 87.00%
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Re: Avantis Funds: what's so special about them?

Post by Apathizer »

saolafan wrote: Sat Jul 02, 2022 5:10 pm
typical.investor wrote: Sat Jul 02, 2022 4:13 pm
I agree that it's misleading to say that Avantis targets momentum. I wasn't aware that patient trading is more accurate term for what they do. DFA does do something similar.
I seem to remember this being discussed on a rational reminder podcast. I think they said something to the effect targeting momentum would require fairly high turnover which would be inefficient/expensive. If I remember correctly targeting momentum would probably result in it being mostly arbitraged away, thus eliminating practical benefit. For these reasons they don't think pursuing momentum is worthwhile.
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Re: Avantis Funds: what's so special about them?

Post by Northern Flicker »

DaufuskieNate wrote: Sat Jul 02, 2022 6:52 pm A factor regression confirms that they are not capturing a momentum premium. OTOH, the strategies employed by both Avantis and DFA do seem to avoid the negative momentum exposure that can often be seen in value funds.
It is interesting that AVUV has had a negative loading on momentum in the Fama-French model:

https://www.portfoliovisualizer.com/fac ... sion=false

but a significant positive loading on momentum in the AQR model:

https://www.portfoliovisualizer.com/fac ... sion=false
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Re: Avantis Funds: what's so special about them?

Post by typical.investor »

Northern Flicker wrote: Sun Jul 03, 2022 12:31 am
DaufuskieNate wrote: Sat Jul 02, 2022 6:52 pm A factor regression confirms that they are not capturing a momentum premium. OTOH, the strategies employed by both Avantis and DFA do seem to avoid the negative momentum exposure that can often be seen in value funds.
It is interesting that AVUV has had a negative loading on momentum in the Fama-French model:

https://www.portfoliovisualizer.com/fac ... sion=false

but a significant positive loading on momentum in the AQR model:

https://www.portfoliovisualizer.com/fac ... sion=false
Well, that's not so surprising. Loadings depend on the factor definition. AQR and Fama-French have different definitions, so a difference in loadings is expected.

What is perplexing to me, is why the significant positive loading on momentum in the AQR model disappears when using HML instead of HML-DEV. If factor returns are actually independent, why does changing the HML definition change MOM so much?

So maybe the MOM difference is not from different definitions of MOM, but rather different definitions of HML.

And even using the HML-DEV, why is AVUV MOM so much lower at 0.05 (vs the small cap value AVUS MOM of 0.3)? The both use the same methodology I believe except perhaps for how deeply the screen for value. AVUV drops to 0.00 when using HML vs the AVUS drop to 0.1. I also point out that the AQR Small Cap Momentum ASMOX has a strong MOM loading whether using HML or HML-DEV.

In any case using HML-DEV in the AQR model for AVUS reports a similar value loading (0.73 vs 0.7 for the HML model), with the performance attribution of value in the HML-DEV model said to contribute 56.56 monthly basis points in returns vs only 20.42 monthly basis points in return for for HML value. The higher mom loading in the HML-DEV model actually worked against returns as the monthly factor returns of MOM was negative in this time. Also, the HML-DEV model also showed a negative alpha.

So under the HML-DEV, value returns were stronger, and that was offset by more negative MOM returns (due to it's higher loading and negative monthly MOM premium in the period) and greater negative alpha (unexplained).

Like I say, factor analysis is fuzzy and I am not sure here that using the AQR model with HML-DEV is really saying that AVUS loads on MOM. In a period where value did well, you'd expect a fund like AVUS to do well if it were holding on to funds that have appreciated due to their mom screen. I don't really find the higher MOM loading using the AQR model with HML-DEV to be plausibly explanatory.
asturzu
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Re: Avantis Funds: what's so special about them?

Post by asturzu »

Northern Flicker
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Re: Avantis Funds: what's so special about them?

Post by Northern Flicker »

typical.investor wrote: Sun Jul 03, 2022 1:04 am Well, that's not so surprising. Loadings depend on the factor definition. AQR and Fama-French have different definitions, so a difference in loadings is expected.
It was surprising to me that it varied as much as it did. But I guess with momentum the length of the look back will affect whether or not you harvest momentum in a given period, which probably calls into question whether momentum even exists as a harvestable factor.
typical investor wrote: What is perplexing to me, is why the significant positive loading on momentum in the AQR model disappears when using HML instead of HML-DEV. If factor returns are actually independent, why does changing the HML definition change MOM so much?
Factors are not independent despite claims to the contrary. A major limitation of factor theory is the lack of agreement in how to define factors other than size or market.
Last edited by Northern Flicker on Sun Jul 03, 2022 4:51 pm, edited 1 time in total.
My postings represent my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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