UBS’ favorite value ETF combines active management with a low fee

Investors looking to shift into value stocks after the first-half rally should take a closer look at a low-cost, actively managed fund that is showing signs of momentum, according to UBS. ETF strategist David Perlman said in a note to clients Tuesday that the Avantis U.S. Large Cap Value ETF (AVLV) makes sense for investors who want cheap stocks without sacrificing quality. “We believe AVLV’s approach best aligns with our current views: a slight preference for US large cap value, our short-term theme ‘Time for quality,’ and two of our most preferred US sector views are energy and industrials,” Perlman wrote. The ETF has underperformed the broader market this year, with growth-oriented tech stocks soaring, but it has started to gain traction over the summer. AVLV has a total return of 11.2% over the past three months. The fund has also seen solid net inflows to bring its total assets under management to more than $1 billion. AVLV 3M mountain This Avantis value ETF has rallied over the past three months. The Avantis ETF also comes with an alluring price tag: an expense ratio of 0.15%. That puts its price closer to passively managed index or factor funds than many large actively managed ETFs. The fund focuses on companies with low valuations but high profitability ratios. Stocks that score high on these metrics are given a bigger weighting in the fund than they would be in a simple market-cap weighted fund of stocks in the category, according to the fund’s prospectus . “This process has led to a value tilt that’s been closer to more traditional value indices than deeper value strategies. However, it’s also resulted in a higher quality portfolio compared to many other value strategies,” Perlman wrote. Phil McInnis, chief investment strategist at Avantis Investors, said the fund’s flexibility to make changes on any given day gives it an advantage over index funds with more stringent rules, while also using an investment process that keeps portfolio managers from being led astray by individual stocks. “Our goal is to systematize active management. … If you think about any sort of factor model, it has limitations. What we want to have is a good underlying understanding of what we expect to drive differences in returns across stocks through time to use that as a good platform to help us make better decisions,” McInnis said. The AVLV is benchmarked against the Russell 1000 Value Index, but McInnis said the fund is largely “tracking error agnostic.” For example, the fund excludes real estate investment trust and heavily regulated utilities. The fund’s top holdings include Meta Platforms , Apple , JPMorgan Chase and Exxon Mobil .