The Profitability Filter That Separates AVUV From Every Other Small Cap Fund

"AVUV targets three well-documented return premiums: small-cap, value, and profitability. Rooted in Fama-French factor research, it screens for stocks with low price-to-book and price-to-earnings ratios while filtering out unprofitable companies that drag down traditional value indexes - the so-called "value traps.""

"Over five years, AVUV returned +81.3% - versus +20.5% for the broad small-cap benchmark iShares Russell 2000 ETF (NYSEARCA:IWM) and +60.9% for Vanguard Small-Cap Value ETF (NYSEARCA:VBR). That gap over VBR is meaningful given AVUV's 0.25% expense ratio - the profitability filter has more than compensated for the fee difference."

"The macro backdrop has shifted in AVUV's favor. The Fed has cut rates meaningfully since October 2025, bringing the fed funds rate to 3.75%, a direct tailwind for AVUV's leveraged small-cap holdings, which benefit as borrowing costs fall. Meanwhile, the 10-year Treasury yield has declined to 4.03%, adding valuation support for the cyclical value stocks that dominate AVUV's portfolio."

AVUV is a small-cap value ETF that applies a profitability filter to traditional value screening, targeting stocks with low price-to-book and price-to-earnings ratios while excluding unprofitable companies. The fund holds 900+ stocks concentrated in cyclical sectors like financials, consumer discretionary, industrials, and energy. Over five years, AVUV returned 81.3%, significantly outperforming the Russell 2000 benchmark at 20.5% and Vanguard's small-cap value ETF at 60.9%. Recent Fed rate cuts to 3.75% and declining Treasury yields provide favorable conditions for AVUV's leveraged small-cap holdings. The fund's 0.25% expense ratio is offset by the profitability screen's outperformance. However, factor premiums remain inconsistent, and small-cap value has historically underperformed large-cap growth.

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