It’s often said that “it’s a stock picker’s market” and that saying seems to pop up frequently as equities slump, as was the case last year. However, stock picking is hard as evidenced by the fact that scores of active managers fail to beat their benchmarks. As a result, the actively managed funds, including active ETFs, that do beat their bogeys, stand out. That group includes the Avantis U.S. Large Cap Value ETF (AVLV) and the Avantis U.S. Small Cap Value ETF (AVUV). As the names of those ETFs imply, they are value funds – a style that served investors well in 2022 as growth stocks slumped.
In the case of the large-cap AVLV, that ETF gained 5.6% last year while the average large-cap value fund returned a scant 0.60%. Just seven large-cap value funds beat AVLV last year, according to Morningstar data.
“Avantis ETFs and mutual funds intentionally place greater emphasis on stocks with low price/book ratios and high profitability,” said senior analyst Daniel Sotiroff.
The small-cap value AVUV was similarly impressive last year. That ETF traded lower last year amid a challenging market environment and as investors pondered the effects of those headwinds on smaller stocks, but AVUV’s 2022 loss was only half as bad as the one notched by the largest small-cap value ETF, which is a passive product.
Still, over the trailing 12 months, AVUV is a standout and just a handful of funds in the small-cap value category beat the Avantis product. While past performance is never a guarantee of future returns, AVUV could be poised for more positivity in 2023 as market observers are forecasting continued upside for value stocks as well as a small-cap resurgence.
Another potential star among actively managed ETFs this year could be the Avantis U.S. Equity ETF (AVUS). Unlike the aforementioned AVLV, AVUS isn’t a factor-specific ETF, but it does employ a similar methodology as its value counterpart and that could be a point in favor of investors this year.
“The $3.6 billion Avantis U.S. Equity ETF AVUS takes the same approach as the large-value strategy but applies it to a greater swath of stocks. It avoided losses as steep as the average large-blend fund’s over the past year; it lost 2.1%, while the average large-blend fund dropped 6.3%,” noted Morningstar analyst Katherine Lynch.
The bronze-rated AVUS is one of the top performers in Morningstar’s large-cap blend category.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.