Investors looking for an edge through an actively managed allocation have a new fund to consider.
On Tuesday, September 26, Avantis Investors (a subsidiary of American Century Investments) launched the Avantis U.S. Large Cap Equity ETF on the New York Stock Exchange, Arca, under the ticker “AVLC.” AVLC invests in a spread of large-cap U.S. companies across various sectors.
AVLC claims it attempts to boost returns by overweighting in stocks that are trading at lower valuations and with higher profitability ratios (calculated as profitability against book value.) Currently, its top holdings include Apple, Amazon, Microsoft, Alphabet, Nvidia, and UnitedHealth Group.
“American Century has made strong inroads into the ETF market with their actively managed equity lineup,” said Vettafi's Todd Rosenbluth of the launch. “It is great to see them provide more tools for asset allocation purposes.”
ADVS is part of a broader push by the subsidiary manager to penetrate deeper into the active investing space.
Avantis has already launched five active funds this year. In June, it added four ETFs to its suite structured as “fund of funds” (ETFs that track existing Avantis funds). As recently as July, it offered investors exposure to pockets of growth in overseas markets with the floating of its Avantis International Small Cap Equity ETF (AVDS).
It has been a tough couple of years for market participants, yet turbulent economic currents threaten to pull portfolios further off course. In these conditions, Avanits believes fewer investors are willing to passively go with the flow.
“We've been through a pretty significant market regime change, and so there's a lot of uncertainty,” says Sandra Testani of American Century Investments.
“That leads folks to be really interested in professional management…and having views on how to position portfolios…and that culminates with a lot of experienced managers coming to market with some very solid offerings.”
Forget ‘Set and Forget'?
Indeed, following the money suggests the market has a growing appetite for active solutions.
“Last year we saw about 15% of the flows went to active… and this year flows (to active) are about 30%,” says Testani.
Data from Morningstar shows this trend was being felt right from the start of the year. In February alone, investors withdrew more than $10 billion from passive index trackers and instead funneled over $8 billion into active ETFs.
There has been plenty of historical research showing passive ETFs tend to outdo mutual funds. A recent study by the Wall Street Journal showed passive also tends to beat actively managed ETFs in most categories. Analyzing data from the past five years, the study found only two out of six groupings (fixed income and value equity) did active ETFs,on average, outperform their passive counterparts on a pre-tax, total-return basis, on average.
However, the results of the recent past do not predict the outcomes of the near future. As leading economist Mohammad El-Erian noted in an opinion piece for the Financial Times, passive strategies did well through the 2010s because “artificially floored interest rates and massive injections of central bank liquidity boosted virtually all assets.” Now macroeconomic conditions have changed, he suggests greater selectivity and dynamic asset allocation will best passive vehicles going forward.
In sizing up AVLC, investors will want to assess their appetite for active management and whether this ETF's asset allocation and investment thesis compliments their strategy.
AVLC is currently swapping hands at around the $49 point. It comes with an expense ratio of 0.15%.