Episode 401: Eduardo Repetto & Caitlin Ebanks - Opening the Avantis CAGE

Episode Summary

Executive Summary: This episode of The Rational Reminder Podcast features Eduardo Repetto (Avantis) and Caitlin Ebanks (CIBC) discussing the launch of Avantis ETFs in Canada. The conversation covers the partnership's genesis, product lineup, fee structure, and the significance of bringing low-cost, factor-tilted ETFs to Canadian investors in Canadian dollars. The hosts highlight how these products simplify access to factor investing, previously requiring complex model portfolios with US-listed ETFs.

Main Topics: Avantis-CIBC Partnership and Product Launch (Priority: 5/5): Discussion on how the partnership formed, the mutual client focus, and the agreement on low fees. Avantis launched 8 ETFs in Canada, including single-country equity strategies (US, Canada, International, Emerging Markets) and a global equity asset allocation ETF (CAGE). Fee Structure and Transparency (Priority: 5/5): Emphasis on competitive fees (e.g., 19 bps for Canadian and US equity ETFs) and the commitment to operating expense caps. Caitlin explains MERs will be management fee plus ~1.13x for taxes, with internal ETF holdings waiving fees to avoid double-charging. Investment Strategy and Factor Tilts (Priority: 4/5): Eduardo explains the factor-based approach: underweighting low-profitability, high-relative-price companies and overweighting high-profitability, high-book-to-market companies. The global equity fund (CAGE) adds a small value tilt via an 8% allocation to global small cap value. Implementation and Turnover (Priority: 3/5): Avantis ETFs hold securities directly (except the fund-of-funds). Turnover is low (25% for aggressive strategies); capital gains distributions are minimized via low turnover and cash flow management. Accessibility for Canadian Investors (Priority: 4/5): Previous barriers (US-listed ETFs, currency conversion) are removed. Hosts note that factor investing is now as easy as buying a market-cap ETF. Future Developments and Commitment (Priority: 3/5): Both parties express commitment to the suite (8 funds launched) and openness to mutual funds and balanced strategies based on client demand. Emerging markets ETF delayed due to country-specific approvals.

Key Arguments: Avantis strategies are designed to deliver factor-based outperformance (1.5-2% expected premium) with modest tracking error (3-4%) relative to geographically matched market-cap portfolios. Low fees are essential; both Avantis and CIBC aligned from the start to keep expense ratios competitive. Direct securities holdings in Canadian-listed ETFs improve tax efficiency compared to wrapping US-listed ETFs. The CAGE asset allocation ETF's floating market-cap weights (ex-Canada) and added small value tilt offer a differentiated all-in-one solution. Low turnover (~25% for aggressive strategies) and prudent cash flow management reduce capital gains distributions, making these suitable for taxable accounts.

Data Points: AUM of Avantis: $125 billion - Achieved in ~6.5 years, a record for a new brand. Management fee for CAUS and CICE: 19 bps - Canadian and US equity ETFs; comparable to Avantis' US fee of 15 bps. Expected factor premium: 1.5%-2% per year - Over a geographically matched market-cap portfolio, with tracking error of 3-4%. Turnover for most aggressive strategy (small value): ~25% - Indicates low turnover and reduced transaction costs. Shift in portfolio weights (reds to greens): ~15% - Underweight low expected return stocks, overweight high expected return stocks.

Pivotal Quotes: "The strategies are very good, we have low fees, and we have cutting edge technology. That should be good. But the product that people don't know... you have no track record. And so some people trusted on day one." — Eduardo Repetto: On building trust initially without a track record; Avantis' success is attributed to delivering on its promises. "On day one, we were very clear both sides that this is what we should charge to be fair to the investor. And we will deal with the finance departments telling them we have to live within this expense ratio, both of us." — Eduardo Repetto: Explaining the mutual commitment to low fees during the CIBC partnership negotiations. "The ETFs hold the securities directly with one exception. The fund of funds (CAGE) buys the ETFs, but the other ETFs hold securities directly." — Eduardo Repetto: Clarifying that the Canadian-listed ETFs (except the fund-of-funds) hold underlying securities directly, not US-listed ETFs.

Implications: Canadian DIY investors now have simple, low-cost access to factor-tilted equity strategies directly in Canadian dollars, removing previous complexity. The launch may accelerate adoption of factor investing among Canadian advisors and retail investors, and could pressure other providers to lower fees or offer similar products.