AVSC targets smaller U.S. companies with stronger profitability metrics than typical small-cap indexes include. While most small-cap ETFs own everything in the Russell 2000 regardless of quality, this fund screens for companies actually making money.
How It Works
The fund starts with U.S. small caps but applies profitability and value screens to eliminate the junkiest names. Holdings are weighted by market cap but with adjustments for profitability and relative price. Unlike pure index funds, the managers have discretion to avoid stocks with deteriorating fundamentals. Rebalances happen as opportunities arise rather than on a fixed schedule.
Key Features
- Excludes unprofitable companies that plague most small-cap indexes
- Active implementation allows dodging obvious value traps and frauds
- Tilts toward profitable value stocks within small caps
Risks
- Small caps can drop 40-50% in recessions as financing dries up
- Quality screens mean missing some high-flying growth stories
- Higher turnover than passive indexes could create tax drag in taxable accounts
Who Should Own This
Best for investors who want small-cap exposure but are tired of owning zombie companies that never make money. Works as a core small-cap holding for those willing to pay slightly more for quality screening. Not for momentum chasers who need every speculative biotech.