AVIE targets companies with pricing power during inflationary periods by focusing on firms with low labor intensity and high profit margins. The fund bets that businesses less dependent on human capital can better protect margins when wages rise.
How It Works
The strategy screens for companies with high gross profitability relative to their workforce size, essentially finding businesses where revenue per employee is exceptionally high. It weights holdings by market cap but tilts toward smaller positions in mega-caps. The portfolio rebalances quarterly and typically holds 200-300 stocks across developed markets, with about 70% in US equities.
Key Features
- Targets companies with 3-5x higher revenue per employee than market average
- Combines inflation hedge with quality factor exposure through profitability screens
- Lower correlation to traditional value and momentum factors during rate hikes
Risks
- Strategy underperforms by 5-10% annually when inflation unexpectedly falls or deflation hits
- Heavy tech and pharma concentration (often 50%+) creates sector risk during rotations
- Limited track record since 2022 launch means the inflation thesis remains largely untested
Who Should Own This
Best suited for investors worried about persistent 4-6% inflation eroding traditional 60/40 returns. Works as a 5-10% portfolio sleeve to hedge human capital risk for those in wage-sensitive industries. Not a replacement for broad equity exposure given its concentrated factor bets and narrow sector tilts.