Avantis launches factor-enhanced EM ex-China ETF

Mar 22nd, 2024 | By | Category: Equities

Avantis Investors, a subsidiary of American Century Investments, has launched a new actively managed ETF delivering a multi-factor strategy within emerging market equities, excluding those listed in China.

Phil McInnis, Chief Investment Strategist, Avantis Investors

Phil McInnis, Chief Investment Strategist, Avantis Investors.

The Avantis Emerging Markets ex-China Equity ETF (AVXC US) has been listed on Nasdaq with an expense ratio of 0.33%.

Investors are increasingly cautious about allocating capital to China amidst a backdrop of mounting economic challenges, including a deepening real estate crisis, deflation in consumer prices, declining exports, and rising youth unemployment.

Emerging market ex-China strategies offer investors the flexibility to tailor their exposure to Chinese equities within their emerging market portfolios. While some may opt to entirely exclude China, others may prefer to adjust their allocations by blending these strategies with China-focused investments according to their preferences.

While passive emerging market ex-China ETFs have gained traction recently, AVXC stands out for investors seeking not only diversification across emerging markets but also the potential for superior performance. The fund aims to deliver benchmark-beating returns by systematically capturing multiple factor risk premia that have been well-established through decades of securities markets research.

Investment approach

The ETF is actively managed by Avantis Chief Investment Officer Eduardo Repetto, Senior Portfolio Managers Mitchell Firestein, Daniel Ong, Ted Randall, and Portfolio Manager Matthew Dubin.

The fund seeks to outperform the MSCI Emerging Markets ex-China IMI Index, a broad market index consisting of large, mid, and small-cap companies within 23 developing economies excluding China.

Securities are selected and weighted from the initial universe based on a systematic investment approach that favours firms with relatively smaller market capitalizations, higher profitability ratios, and lower valuations. The approach is designed to maintain broad diversification across countries, industrial sectors, market capitalization segments, and companies in order to mitigate concentration risk.

Implementation costs are tightly controlled with the fund’s management carefully analyzing whether the forecast benefits of a trade overcome its associated trade costs and risk.

According to Avantis, the approach combines the benefits associated with indexing, including diversification, low turnover, transparency, and tax efficiency, with the potential to add value by making investment decisions using information contained in current prices.

Phil McInnis, Chief Investment Strategist, Avantis Investors, commented: “We are excited about the debut of our latest ETF, AVXC, which marks our 28th active ETF launch since fall 2019. The continued adoption we see from investors across our range of offerings reinforces the belief we had when we started Avantis. Investors see value in low-cost, well-designed active strategies that combine the best elements of indexing with the potential to achieve better outcomes.”

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