Avantis Wins With DFA Pedigree, Active Management

With $50 billion in assets under management and only five years of existence, Avantis Investors is one of the exchange-traded fund industry's biggest success stories.

That beefy AUM is almost all organic growth as well, as the firm started from scratch with five ETFs when Eduardo Repetto and Patrick Keating joined asset manager American Century in September 2019 as chief investment officer and chief operating officer, respectively, to launch Avantis Investors. Both were veterans of Dimensional Fund Advisors.

Now the fund issuer takes in about $1.5 billion in net new flows per month and has 28 ETFs, Repetto says.

"The firm had few advantages going for it in its early days," says Daniel Sotiroff, senior manager research analyst at Morningstar.

DFA Pedigree, Active Management Keys to Success

Avantis was one of the first fund issuers with actively managed ETFs and kept fees low. The pedigree of the team—having worked at DFA, implementing diversified, factor-investing strategies with a specific focus on value and profitability, while relying on the American Century’s distribution network—mattered as well. 

Nate Geraci, founder of The ETF Store, agrees. “They’re taking a very similar approach to Dimensional, but they beat them to market by more than a year, and that allowed them to gain a footing in the industry,” he says.

AVUV Outperforming SPY

What keeps the money rolling in is performance, exemplified by the flagship $12.7 billion Avantis U.S. Small Cap Value ETF (AVUV). Through the end of July, it is up 17% annualized from its 2019 inception, while the SPDR S&P 500 ETF Trust (SPY) was up 16% over that timeframe. AVUV costs 0.25% annually, and SPY’s expense ratio is 0.095%.

Repetto says Avantis focuses its efforts on the financial-advisor space and that’s where most of the growth is coming from. Avantis has retail clients, but it doesn’t do a lot of advertising. He says what differentiates Avantis is competitive fees and a unique strategy which focuses on value and profitability, not just cheap companies.

“Tons of company have low price-to-book because they lose a lot of money. What's attractive about that? I always call them gas-station sushi. Yes, it’s cheap, but is that what you want?” he says.

Avantis to Expand Offerings

As it reaches its fifth birthday, Avantis continues to expand its offerings, Repetto says. In about month it will launch UCITS, first in Europe, but with plans to expand its offerings in other locations as it piggybacks on American Century’s international offices in the U.K., Europe, Hong Kong and Australia. A large-cap quality strategy ETF is also set for launch in about two months to round out the issuer’s products.

There will also be more outreach to the advisor audience to explain the strategies and how they can complement advisor’s existing funds. Repetto says Avantis’ ETFs work well with model portfolios.

The first five years for Avantis have been strong, but competition is heavy and growing. Elizabeth Kashner, director of research for FactSet, says DFA has launched its own ETFs, as have other big names such as JPMorgan. In the early days those firms converted some mutual funds to ETFs to get a footing in the ETF ecosystem, so total firm AUM didn’t change, just the wrapper. Yet those firms, and others, are launching new, standalone ETF as well and looking for dollars. 

Time will tell how quickly Avantis gets to its next $50 billion. Geraci says Avantis benefits from low fees, brand recognition with advisors, meaningful AUM and liquid products, all the due diligence criteria an advisor seeks. The key for the future will be returns.

“Ultimately, when it comes to active ETF, performance is king. Advisors are going to look at the underlying performance. You have to deliver,” he says.