Comparison of Ultra-Targeted Factor ETFs: DFSV and AVUV

Overview

• DFSV and AVUV are recent Ultra-targeted Factor ETFs focused on U.S. small-cap value stocks.
• DFSV is managed by Dimensional, and AVUV by Avantis.
• Both funds aim to provide superior exposure to size and value factors, which are expected to deliver a premium over time.

Background on Factor Investing

• Factors are independent sources of portfolio risk identified by financial academia, primarily by Dimensional itself.
• Size and Value Factors: Small and underpriced stocks that are predicted to outperform in the long term.
• Historical exposure to these factors highly influences diversified portfolio performance.

Who Are DFA and Avantis?

• Dimensional Fund Advisors (DFA): Founded in 1981, originally gold standard for delivering factor exposure.
  • Established by David Booth, with board members like Eugene Fama and Kenneth French.
  • Converted many mutual funds to ETFs, including DFSV.
• Avantis: Founded by former DFA members, maintaining a scientific approach with new innovations in factor funds.
  • Launched AVUV in late 2019.

DFSV vs. AVUV: Key Comparisons

Factor Loadings

• Both funds have similar methodologies for targeting size and value factors.
• AVUV slightly outperforms in factor metrics:
  • Lower average market cap by ~10%
  • Lower P/E ratio by ~25%

Performance

• Compared DFSV (using DFSVX mutual fund data) vs. AVUV from Oct 2019 to 2022.
• AVUV outperformed DFSV in both general and risk-adjusted terms during this period.

Should You Choose DFSV or AVUV?

• Very similar funds, both suitable for targeted factor exposure in small-cap value stocks.
• AVUV has a slightly lower fee (0.25%) compared to DFSV (0.31%).
• Decision might boil down to personal preference as both funds are efficient and effective.
• Possible strategies:
  • Stick with your existing fund (if you already own one of them).
  • Split investment 50/50 between both funds.
  • Consider them for tax-loss harvesting purposes.

Practical Considerations

• Both ETFs should be available through any major broker.
• Fee structures are modest and competitive given their targeted exposure aims.

Conclusion

• Both DFSV and AVUV offer compelling options for those seeking targeted exposure to U.S. small-cap value stocks.
• No clear winner; choice can be based on personal preference or strategic considerations in portfolio management.

Questions for the Audience

• Do you own either DFSV or AVUV?
• What do you think of these funds?
• Share your thoughts and experiences in the comments.

Personal Note: The presenter is long AVUV in their own portfolio.