What is AVIV? (Pros, Cons, and Strategies)

As global diversification becomes an essential aspect of modern investment portfolios, investors are looking beyond domestic ETFs. One compelling option is AVIV, the Avantis International Large Cap Value ETF, designed to expose you to international large-cap value stocks. In this blog post, we'll dive into what AVIV is, its benefits, drawbacks, and some strategies for investing in it.

What is AVIV?

AVIV stands for Avantis International Large Cap Value ETF. This ETF seeks to provide long-term capital appreciation by investing in a diversified portfolio of large-capitalization international stocks that are perceived to be undervalued. These are companies trading at a lower price relative to their fundamentals, focusing on value investing principles.

Key Features of AVIV

• International Exposure: Focuses on large-cap companies outside of the U.S.
• Value Focus: Invests in stocks considered undervalued based on metrics like book-to-market ratios and earnings yield.
• Diversified Portfolio: Holds a large number of stocks, reducing the risk of exposure to any single company or country.

After selecting eligible companies, AVIV aims to construct a portfolio that emphasizes value characteristics while maintaining sector diversification and limiting undue exposures.

AVIV Composition

AVIV includes a broad range of large-cap stocks from various sectors, including financials, consumer goods, and industrials, across developed markets excluding the U.S. Companies might include international giants like HSBC, Nestlé, and Toyota. Unlike purely domestic ETFs, AVIV offers a diversified portfolio spread across multiple countries and industries.

Pros of AVIV

Global Diversification

By investing in AVIV, your portfolio gains exposure to global markets, potentially reducing the unsystematic risk associated with a home country bias. This diversification can be particularly beneficial during periods when the U.S. market underperforms compared to international markets.

Value Investing Advantage

Value investing has proven its merit over long periods, showing a tendency to outperform growth investing in certain market cycles. By focusing on undervalued large-cap stocks, AVIV aims to capitalize on the inherent potential for price recovery and long-term appreciation.

Low Expense Ratio

AVIV comes with a competitive expense ratio. Similar to SCHD for domestic investments, a lower expense ratio ensures that more of your money is working for you rather than being diverted to fees. This characteristic makes AVIV attractive for long-term investors.

Income Potential

Although AVIV is not primarily a dividend ETF, value stocks often pay dividends. This can provide a secondary source of income, adding an element of periodic cash flow alongside the potential for capital appreciation.

Cons of AVIV

Exposure to Foreign Market Risks

Investing in international stocks introduces various risks, such as currency fluctuations, political instability, and economic variability. These factors can affect the performance of the ETF and introduce elements of unpredictability.

Less Familiar Companies

For investors primarily familiar with U.S. markets, the international companies represented in AVIV might be less recognizable. This lack of familiarity can lead to discomfort for some investors who prefer to invest in well-known domestic companies.

Value Trap Risk

Value investing is not without its pitfalls. Some stocks might appear undervalued but remain so because of underlying fundamental issues—a risk known as a value trap. Assiduous analysis and ETF management aim to mitigate this risk, but it cannot be wholly eliminated.

AVIV Investment Strategies

Long-term Investment Strategy

Similar to SCHD for domestic investments, AVIV requires a long-term horizon to capitalize on its value investing strategy. Expecting significant returns in a short period is unrealistic as value stocks can take time to reflect their true potential. A minimum investment horizon of 5-10 years is recommended for AVIV.

Diversified Portfolio Approach

For balanced portfolio construction, consider AVIV as a part of a diversified investment strategy. Complementing your domestic ETFs and bonds, AVIV adds an international perspective, mitigating risks associated with downturns in any single market.

Reinvestment of Dividends

If AVIV includes dividend-paying stocks, reinvesting those dividends can enhance the compounding effect over time. By automatically reinvesting dividends, you can increase your shareholding without additional cash outlays, bolstering long-term growth.

Regular Review and Rebalancing

Given that AVIV operates in international markets with varying economic conditions, regular review and portfolio rebalancing become essential. Periodically reassessing your investment in AVIV ensures it aligns with your broader financial goals and risk tolerance.

In summary, AVIV offers a valuable opportunity to diversify your portfolio internationally while tapping into undervalued large-cap stocks. While it comes with its set of risks and challenges, a strategically planned and long-term investment approach can maximize the benefits this ETF has to offer. Invest wisely and make sure to periodically reassess your strategies to adapt to evolving market conditions.