AVUV Active Strategy May Benefit from ‘January Effect’

Small-cap companies are stealing the spotlight in the world of long-term investments.

With the tantalizing “January Effect” tailwind possibly around the corner, there’s an opportunity for investors to swim in the high-growth pool. Stocks, especially those of small-cap companies with a market capitalization ranging from $250 million to $2 billion, tend to rise in the first month of the year. So, why not kick off 2024 by not just trying to grow personally, but also financially?

Small-cap stocks have many advantages: they offer more room for growth for investors, lower share prices, greater diversity of businesses and lower popularity. Yet, be aware that small-cap stocks can be riskier and more volatile than large ones.

Now, let’s look at a small-cap exchange-traded fund (ETF) that is worth considering, Avantis U.S. Small Cap Value ETF (AVUV). AVUV doesn’t just pick stocks; it actively manages a portfolio of highly profitable U.S. small-cap companies, aiming for long-term capital appreciation. It is also an open-ended fund that can issue unlimited new shares, priced daily on net asset value — flexible, dynamic and ready to roll.

What adds an extra layer of excitement to this portfolio is its broad coverage across sectors and industries. From energy to industrials, financials to health care, information technology to utilities and real estate, AVUV is like a buffet of opportunities for every investor.

Despite the U.S. equities rally experiencing a lull, with the Russell 2000 Index showing a decline of 3.7% in the first week of 2024, the “January Effect” provides hope for reversing this trend. AVUV and other small-cap active strategies can mitigate this and provide flexibility in fluctuating market conditions.

AVUV doesn’t just stop at flexibility; it throws diversification into the mix. Investing in a diverse group of U.S. small-cap companies from various sectors, the fund ensures at least 80% of its assets are in play under normal market conditions. Geographically speaking, this ETF is a red, white and blue affair with all its holdings proudly based in the United States. As a former U.S. Army paratrooper, I can appreciate faith in American ingenuity. And don’t forget, this ETF uses a discerning value screener, which makes it suitable for current macroeconomic uncertainty.

The top 10 holdings in the portfolio include Boise Cascade Co. (NYSE: BCC), Alpha Metallurgical Resources Inc (NYSE: AMR), Ryder System Inc (NYSE: R), KB Home (NYSE: KBH), Mueller Industries Inc (NYSE: MLI), Air Lease Corp Class A (NYSE: AL), Matson Inc. (NYSE: MATX), Goodyear Tire & Rubber Co. (NASDAQ: GT), Taylor Morrison Home Corp. (NYSE: TMHC) and Meritage Homes Corp. (NYSE: MTH). These constitute 8.55% of total assets, according to Yahoo Finance. Overall, there is a total of 749 holdings in the AVUV portfolio.

As of January 2024, this fund is down by 1.38% over the past month, up 14.66% over the past three months and down by -3.70% year to date (ETF.com).

The fund has $8.48 billion in net assets under management, and it has an expense ratio of 0.25%, according to ETF.com. The yield amounts to 1.66%, while the price-per-earnings (P/E) ratio is 7.36 as of January 17, 2024.

Source: StockCharts.com

Still not convinced? Small-cap stocks might just reward you with growth and returns that can make your financial heart race. However, it is a risky and volatile investment; therefore, it is important to consider and carefully analyze the ETF before making any investment decision.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me. You may see your question answered in a future ETF Talk.