American Century-owned Avantis, a new ETF provider staffed with DFA alums, is widening out its initial product suite in the US.
Avantis International Equity ETF (AVDE) – 0.23%
Avantis International Small Cap Value ETF (AVDV) – 0.36%
Avantis U.S. Equity ETF (AVUS) – 0.15%
Avantis U.S. Small Cap Value ETF (AVUV) – 0.25%
AVDV and AVUV buy value small caps from developed countries and the US, respectively. Value is measured using profitability ratios, fundamentals and price. (The prospectus is light on specifics, as you’d expect for an active fund). Sector diversification constraints are put in place to make the portfolio more market-like.
American Century takes DFA approach
How AVDE and AVUS work isn’t much explained. The description of both appears similar to the two size-value funds.
There’s no reason quant funds should succeed
A Sydney quant once got a phone call from an unknown stranger one Monday mid-morning. The stranger asked what his opinion of a company’s capital event was. The quant replied saying he had no knowledge of the event, and had no opinion in any case. He added he was more interested in finding out who the stranger was, and why the stranger was disturbing his Monday to ask this random question.
It turned out the stranger was the CEO of an Australian company. He was calling because the quant’s fund was one of the company’s major shareholders. It was embarrassing for the quant. It showed he did not know who the CEO of an important portfolio company was and did not know it was having a capital event.
While this is only an anecdote, it speaks to the general folly of quant funds, especially passively managed ones.
Like plenty ofothers, I do not see how winning companies can be picked with basic data like price-to-book without an active manager there. And if they could be picked so simply, I do not see why such a “systematic risk premium” wouldn’t be arbed out.
The good news for smart beta ETF buyers is that most smart beta ETFs are closet trackers anyway. (ETF product teams already know passive factor indexing only works at the margins). While the good news for today’s listings is the active manager is there.
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Image: Eduardo Repetto, Avantis CIO
