AVSE targets emerging market companies that pass ESG screens while maintaining the value and profitability tilts that define Avantis's investment philosophy. It's essentially their standard emerging markets approach with environmental and social guardrails added.
How It Works
The fund starts with a broad emerging markets universe, then excludes companies involved in controversial businesses like tobacco, weapons, and thermal coal. From the remaining pool, it overweights smaller, cheaper, and more profitable companies using Avantis's systematic scoring methodology. Holdings are market-cap weighted within these factor tilts, with quarterly rebalancing to maintain exposures.
Key Features
- Combines ESG screening with systematic value/profitability tilts rare in sustainable EM funds
- Excludes China state-owned enterprises, reducing government interference risk
- Lower turnover than typical ESG funds due to rules-based rather than ratings-driven approach
Risks
- ESG constraints could exclude 15-20% of EM universe, potentially missing major market moves
- Emerging markets currency swings can erase 10-20% returns in bad years
- Value tilt means extended underperformance possible during growth-led rallies like 2020-2021
Who Should Own This
Best for investors who want emerging markets exposure but need to satisfy ESG mandates or personal values constraints. Works well as a core EM holding for those comfortable with Avantis's factor approach, replacing traditional broad EM funds. The ESG overlay costs roughly 20-30 basis points in tracking difference versus unconstrained strategies.