ETF Pulse Check Avantis International Large Cap Value ETFs Strategic Position

The Avantis International Large Cap Value ETF (AVIV) stands as a compelling investment option, focusing on non-US developed market equities with an emphasis on value investing. It actively targets equities from developed markets outside the US, prioritizing companies trading at lower prices relative to their book values, while emphasizing high profitability. In the current market environment, characterized by geopolitical tensions and economic uncertainty, AVIV’s strategy is particularly relevant. The fund’s approach involves thorough analysis of company financials and market data to identify value opportunities, allowing it to navigate diverse market sectors and industry groups. Portfolio managers employ continuous data analysis to make informed decisions, factoring in considerations such as liquidity, tax, and governance.

Basic Information
The Avantis International Large Cap Value ETF, identified by the ticker AVIV, was launched by American Century Investments on September 28, 2021. With an expense ratio of 0.25%, the ETF offers a cost-effective option for investors seeking international large-cap value exposure. The fund's top 15 holdings include companies such as Shell, Roche Holding, and HSBC, with Shell holding the largest weight at 2.41%. Sector-wise, the ETF is predominantly exposed to financials (6.75%), followed by health care (3.81%) and energy (3.57%). Recent capital flows indicate modest investor interest, with 7-day and 30-day net flow ratios at 0.12% and 0.09%, respectively. Over the last six months, the ETF has achieved an average return of 9.81%, while exhibiting a volatility range of 6.35% to 9.90%. It's important to note the ETF's minimal drawdowns, capped at slightly less than 1% over the past year.

News Summary
Recent headlines encompassing the ETF sector and broader markets reflect a landscape marked by geopolitical and economic challenges. Notably, the US airstrikes on Iran's nuclear facilities have stirred geopolitical tensions, potentially impacting the energy sector, a significant component of AVIV's holdings. This geopolitical backdrop could lead to fluctuations in oil prices, thereby affecting stocks like Shell and TotalEnergies. Concurrently, the European Central Bank's discussion on further stimulus due to weak euro area conditions highlights economic vulnerabilities that could influence European stocks within AVIV’s portfolio, such as Roche and Deutsche Telekom. Additionally, broader economic concerns, including inflation and potential interest rate cuts, underscore the complex environment influencing international value stocks.

Analyst Rating: Hold
The Avantis International Large Cap Value ETF (AVIV) presents a mixed investment profile. Despite its moderate expense ratio of 0.25% and well-distributed sector concentration, the ETF's capital flow metrics indicate only modest investor interest. While recent returns are positive, with a 6-month average return of 9.81%, the decline in 3-year average returns to 2.57% raises concerns about long-term growth potential. However, the ETF's stability is notable, given its controlled volatility and minimal drawdowns. The concentration of top holdings is advantageous, with the top 15 holdings accounting for just 20.93% of total assets. While AVIV exhibits strengths in stability and sector diversification, its average returns and capital flow suggest a cautious investment stance, leading to a 'Hold' rating.

Backtest Scenario
A backtest of the Avantis International Large Cap Value ETF (AVIV) in July 2022 reveals the ETF's performance was shaped by inflation concerns and rate cut expectations. During this period, inflation fears typically led investors to seek safety in fixed-income assets, which may have pressured equity prices, including those within AVIV's large-cap international value portfolio. Conversely, rate cuts by central banks often shift investor preference towards equities, particularly growth stocks, potentially disadvantaging value-oriented investments like AVIV. As a result, AVIV's performance in July 2022 was likely challenged by the interplay of these macroeconomic factors, possibly leading to underperformance if the market favored growth stocks over value stocks.

Risk Outlook
Looking ahead, the Avantis International Large Cap Value ETF (AVIV) faces several risks that could impact its performance. Geopolitical tensions, particularly the US-Iran conflict, pose a significant risk to the energy sector, a key component of AVIV's holdings. Disruptions in the Strait of Hormuz could lead to volatile oil prices, affecting stocks like Shell and TotalEnergies and causing broader market instability. Additionally, the European Central Bank's forecast for further stimulus due to weak euro area conditions suggests potential challenges for European holdings like Roche and Deutsche Telekom, which may encounter slower growth and inflationary pressures. Furthermore, any economic fluctuations in Europe or the US dollar could affect AVIV's financial sector holdings, such as HSBC and Deutsche Telekom. Despite stable liquidity as indicated by net flow ratios, market volatility remains a concern given the geopolitical and economic landscape.

Conclusion
The Avantis International Large Cap Value ETF (AVIV) offers a balanced investment option for those seeking exposure to international large-cap value stocks. While it demonstrates stability and diversification, its average returns and capital flow indicators suggest a cautious approach. Investors should monitor geopolitical developments, economic conditions in Europe, and potential fluctuations in the energy sector, as these factors could significantly influence AVIV's performance in the near to medium term. This ETF may particularly suit balanced investors looking for a diversified international portfolio with a value focus.