Avantis lists an international stock ETF with Vanguard on top

Avantis, from American Century, listed the Avantis All International Core Equity ETF, —AVNC, on NYSE Arca on Monday, September 28. By Sunday, October 4, its largest holding was Vanguard's emerging-markets index fund, AVWO, at 9.8% of assets.

Vanguard's broader index fund of stocks outside the United States, AVEU, was in the portfolio too. Those two funds, two Avantis international funds, and a U.S. stock fund from Alpha Architect, AAAUS, came to 15.1% of assets. The largest company holdings were Taiwan Semiconductor and ASML.

The prospectus, dated Tuesday, September 22, says the fund expects its first securities in exchange for shares, not cash, in contributions intended to be tax-deferred under Section 351, so the contributor would not owe tax on the exchange. ETFs received that way would generally be kept as long-term investments, and they may be a large share of the fund. The fund would sell them to meet redemptions, or if markets move in a way the managers did not expect when the securities came in.

The first holdings look like the portfolio that plan describes. As of Monday, October 5, the fund held $96 million, and from Wednesday, September 30, through Friday, October 2, an average of 867 shares changed hands each day.

Managers put extra weight on smaller companies, and on companies that look cheaper and more profitable. The comparison is the MSCI ACWI ex USA IMI, an index of large, mid-size and small companies in developed and emerging markets, excluding the United States.

The yearly fee is 0.27% after a waiver, and 0.28% before it, as of September 28. On $10,000, that is $27 a year. iShares' total international stock fund, AIXUS, which tracks that index, charges 0.07% in its current prospectus, or $7 on the same amount.

For the holdings in AVWO and AVEU, the extra over that $7 is not the price of choosing those stocks. A 0.01% waiver covers only American Century funds, so the fees inside the Vanguard holdings stay in the bill.

Avantis already has a fund of other Avantis international ETFs, AAVNM, at 0.31% as of August 1. It held $784 million as of Monday.

What a buyer inherits

The prospectus warns that a large part of this starting portfolio may have a low tax basis, the cost used to measure a gain. Selling those securities can force the fund to distribute taxable gains, even in its first year.

Dimensional's world ex-U.S. core equity fund, BDFAX, aims the other way. Its prospectus, dated Saturday, February 28, sets the objective as long-term capital appreciation while considering federal taxes, and the managers try to delay and minimize capital gains as they trade.

Anyone buying in now can inherit that basis along with the Vanguard funds the prospectus expects to keep.