As many of you know, we have long been believers in using investment funds from Dimensional Fund Advisors (DFA) and Vanguard. They have helped us build diversified portfolios in a low cost, tax efficient structure. DFA specifically has helped us tilt our portfolios towards stocks with higher expected returns, such as small stocks, value stocks and high profitability stocks.
Now we would like to introduce our clients to a third company that our Investment Committee has authorized our advisors to use to implement our portfolios. Avantis Investors was created in 2019 by Eduardo Repetto, who was the former Chief Investment Officer and co-CEO of DFA. Eduardo built the firm by mostly hiring former DFA portfolio managers, relationship managers and traders.
The start of Avantis Investors was financially backed by American Century Investments, which has been in the investment business since 1958 and manages over $247 billion in client assets.* This backing has allowed Avantis to grow quickly and they have already amassed $14 billion in client assets.**
There are several reasons our investment committee decided to add Avantis’ ETF (exchange-traded funds) products to our lineup of approved investments:
1) They implement trading and allocations tilts towards high profitability stocks, value stocks and small stocks in the same manner that financial science has illustrated leads to higher expected returns over long periods of time.***
2) They are more intentional in reducing allocation to low-expected return stocks (high price, low profits).
3) They offer all of their strategies in tax-efficient ETF products, which helps reduce taxes for those with non-retirement investment accounts.
4) Their products were priced at slightly lower expense ratios than DFA equivalents, which has created an ongoing price war between the two investment firms. This has caused DFA to cut their fund expense ratios several times over the last two years. This is excellent news for our clients! I will speak to the actual numbers of this in a future blog post.
5) Their products’ performance has been very good since their inception in 2019.
6) Since they are ETFs, we can buy and sell them in Schwab accounts without having to pay the $20 transaction fee associated with traditional mutual funds.
Initially, we are starting to use Avantis ETFs as a tax loss harvesting option for our current portfolio holdings. As time goes on, we expect to continue to layer in more Avantis ETFs for smaller portfolios and tax-sensitive portfolios. This does not mean we are no longer using Vanguard or DFA funds, just that we have a new tool available to build our portfolios.
We are very pleased to have this new company offering these tools for us to use in client portfolios. The ongoing decrease in fund expense ratios makes this development even better. As always, our investment committee will continue to evaluate future investment industry developments that warrant consideration for our clients’ portfolios.
If you wish to discuss this in further detail, please don’t hesitate to contact your financial advisor for a more thorough discussion.
Steven Elwell, CFP®
Partner, Chief Investment Officer
*as of 12/31/21
**as of 8/31/22
***past performance is no guarantee of future returns