A hawkish Fed cut sparks shifts in markets. Small-cap value AVUV, mid-cap value RFV, banks KBE and cash-cow plays COWZ look poised to gain.
Diving headfirst into bonds isn't the only option.
Investors are very familiar with tariff uncertainty by now, hunkering down when tariff vol takes its toll. Tariffs look set to be an important trend for the next few years, but how might investors take advantage?
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.
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.
Active ETFs are grabbing investor attention, with 39% of 2025 ETF flows and 94% of 2025 fund launches now tied to active strategies.
AVUV employs favorable factor regression statistics, asset correlations, and offers strong total and risk-adjusted returns, making it a top small-cap value fund. Despite recent underperformance, AVUV's valuation is attractive, trading at a fraction of the S&P 500's multiple, suggesting potential for future gains. Historical data shows US Small Cap Value outperforms US Large Cap with a 13.33% CAGR and better Sharpe ratio, indicating superior risk-adjusted returns.
Were any equity category to offer investors a new path in 2025, small-caps may be where to look. Following a year in which megacap tech firms contributed massively to most major market indexes, some investors may be concerned by the potential concentration risk those firms pose.
AVUV stands out for its superior factor loadings, top-tier returns, good diversity, and reasonable expense ratio among US Small Cap Value ETFs. Factor regression shows AVUV excels in SMB and HML values, with an annual alpha of 1.46%, outperforming other US SCV funds. AVUV has the highest returns and best risk-adjusted returns since 2019, with a proxy Sharpe ratio of 0.54.
Every new year brings with it a new opportunity to stop for a moment, take stock of where we currently sit, revisit resolutions, and refresh outlooks.
Where might investors want to go in their equity allocations to start 2025? If 2024 was the year of large-cap tech dominating the markets, 2025 may see other segments strike back.