Avantis - ETF Field Guide...2016 elections) to 39.2% (after FDR was elected in 1932). Value premiums were stronger after Democrats’ victories (8.5% vs. 3.6% for Republicans), as

Monthly ETF Field GuideTalking Points for Client ConversationsDecember 2020

This information is not authorized for distribution unless preceded or accompanied by a current prospectus or summary prospectus.

Did You Know?Academic Perspective Market Review Portfolio Updates

Demystifying Cryptocurrencies: A PrimerBy Prof. Andrew Karolyi

Bitcoin seems to be in the news everyday. But what exactly is it? We unpack the opaque world of cryptocurrency.

Global stocks delivered robust returns in December to cap off a strong quarter and year.

U.S. stocks continued to reach record levels.

U.S. bond returns increased for the month and the quarter to end the year with solid gains.

U.S. Equity

U.S. Small Cap Value

International Equity

International Small Cap Value

Emerging Markets Equity

Core Fixed Income

Short-Term Fixed Income

Staying the Course—Lessons Learned from 2020

Reviewing the stock market mayhem of 2020, we're reminded of an important investment tenet: Market timing is a risky and rarely successful strategy.

Appendix

How to interpret charts

Glossary

Disclosures

2

Did You Know?

3

2020 was a year investors will not soon forget. A pandemic, a recession, the end of a more than decade-long bull market (and the beginning of another bull market), all-time highs for the VIX, lockdowns, the prices of oil futures turning negative, a tense U.S. presidential election cycle, unemployment spiking more than 10 percentage points in a matter of months—the list could go on for some time. And after all of it, an above-average calendar year return for U.S. stocks.

Figure 1 on the next page plots the cumulative return of the S&P 500®

Index throughout 2020, along with some corresponding news headlines. The index finished the year up more than 18%, but as you can see in the chart, it wasn’t a smooth ride. After hitting all-time highs in February, stock prices plunged as the seriousness of COVID-19 became more apparent and fear levels skyrocketed about its impact on the economy. Volatility levels spiked amid the downturn, and data from the Investment Company Institute shows many investors flew to government money market funds. See the bottom section of Figure 1 that plots weekly government money market fund flows.

While these flows likely provide an indication about investors’ current appetite for risk, they can also help illustrate the potential opportunity cost of trying to time markets. We conducted an experiment that looked at aggregate inflows and outflows from money market funds and subsequent equity returns to demonstrate the significance of this opportunity cost. Figure 2 summarizes the results.

First, we summed all the weeks where government money market funds had net inflows and all the weeks where they had net outflows. Weeks with net inflows amounted to almost $1.5 trillion, while weeks with net outflows totaled $531 billion. To put the influence of the flight to safety seen earlier this year on these totals in context, between the weeks ending February 19 and March 25, around $750 billion moved into government money market funds, emphasizing the level of anxiety some investors were facing due to the market downturn. If we extend that period to the end of April, when the market had already begun to recover but a high level of uncertainty remained, the inflows into government market funds reached $1.2 trillion.

Staying the Course – Lessons from 2020

Figure 2 | Money Market Flows: What Would They Be Worth If They Had Been Invested in the Market?

ABSOLUTE VALUE OF AGGREGATE FLOWS

IF INVESTED IN THE S&P 500 INDEX

ENDING VALUE ON 12/31/2020

AVERAGE RETURN AS OF 12/31/2020

In weeks with net inflows into government money market funds

$1,462 $2,068 41.49%

In weeks with net outflows from government money market funds

$531 $607 14.22%

Source: Avantis Investors. Money market flow data from the Investment Company Institute. Index Returns from Bloomberg. For index returns over longer time periods, please see page 15.

4

Iran launches missiles at U.S. base in Iraq

First diagnosed COVID-19 case in U.S.

Trump acquitted

Unemployment rate hits 3.5%, lowest in 50 years

Fed cuts rates by 0.50%

CDC reports 129 cases of Coronavirus in the U.S.

March Madness cancelled; Disney World closes; NBA

and NHL suspend seasons

Trump declares national emergency, releasing $50B of federal aid

Fed funds rate cut to zero

CDC reports 15,281 cases S&P 500 bottoms -34% below peak. Senate approves stimulus package

Stay-at-home orders in 27 states affect 225 million people

U.S. announces 1,800 COVID-19 deaths in a day

Q1 2020 estimated GDP falls 4.8%

Unemployment hits 14.7%, highest since Great Depression

George Floyd dies in police custody

Widespread protests in wake of Floyd's death

S&P 500 flat for the year

Joe Biden secures Democratic nomination

U.S. COVID-19 cases top 2.5 million

S&P 500 recovers to Feb. 19 level after 173 days

U.S. COVID-19 deaths surpass 170,000

Q2 2020 estimated GDP falls 32.9%

U.S. COVID-19 deaths top 200,000

Trump tests positive for COVID-19

Unemployment rate hits 6.9%

U.S. election day

News media call the election for Joe Biden

Johns Hopkins reports more than 11 million COVID-19 cases in U.S.

Q3 2020 Estimated GDP growth rate hits 33%

Arizona certifies results for Biden

Pfizer vaccine approved

Electoral College confirms Biden victory

Trump signs new stimulus package

Tota

l Ret

urn

(%)

Flight to Safety in Market DownturnMany investors left the market for the perceived safety of government

money market funds after Feb. 19, thereby missing its recovery.

As Much of 2020 That Fits on One Page

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Outflows

Inflows

Figure 1 | S&P 500® Index Cumulative Total Return, Headlines and Weekly Government Money Market Flows During 2020

Govt

. MM

Flo

ws ($

bill

ions

)

Data from 1/1/2020 – 12/31/2020. Source: ICI, FactSet, Avantis Investors. Past performance is no guarantee of future results.

0

20

-20

0

200

-200

400

5

Staying the Course – Lessons from 2020

Unfortunately, all these assets that sought safety in short-term government instruments didn’t enjoy the full market recovery. When we compute the opportunity cost of not being invested in the S&P 500 Index for the net inflow weeks into money market funds, we see the $1.46 trillion that went into these stable investments could have become more than $2 trillion if left in the market, or the equivalent of an average return of 41.49%. This is substantially higher than the 18.40% total return for the S&P 500 Index for the year, meaning dollars were on the sidelines during the more rewarding parts of the year.

There were some weeks when government money market funds saw net outflows. If we use the same methodology as above and assume these flows were directed to the S&P 500 Index, the average return for those outflows would have been 14.22%. This is lower than the 18.40% total return for the S&P 500 Index, meaning the average dollar would once again have been better off in the market throughout the year.

The astonishing asymmetry of the returns reiterates the ill timing of the cashflows. There is a critical lesson in setting and managing expectations about what can happen in the stock market. Constructing an asset allocation that reflects our risk tolerance and is realistic about the possibility of market downturns of the magnitude we saw in February-March 2020 can help investors avoid selling in times of panic, when prices are depressed not only by news but also by collective selling that can add liquidity concerns to an already high level of uncertainty.

6

Academic Perspective

7

Demystifying Cryptocurrencies: A Primer

Bitcoin (BTC) price swings never fail to captivate our interest. During what might have been a restful Thanksgiving week, the digital currency’s price slumped 13% to just over $17,000 within days of having hit its record high of $19,510. Then within a week, it bounced back from the slump and has since continued to advance, reaching new highs of more than $22,000 by mid-December. In fact, BTC’s price has more than doubled since September 30, 2020.1 Experts had been asking whether the Thanksgiving 2020 slump hinted at a rerun of BTC’s dramatic collapse of 2017, and strong opinions persist on both sides about where BTC’s price will head next.

BTC grabs most of our attention among the hundreds of cryptocurrencies out there trading. After all, it constitutes the largest market share with a circulating supply of over 18 million coins, a market cap of more than $400 billion, and ubiquitous coin exchanges or trading platforms that promote BTC access.2 Equally volatile this year have been the prices of Ethereum’s popular cryptocurrency Ether (ETH) and Ripple’s XRP, both of which use a similar decentralized open-source, or “distributed ledger,” system to record trades as BTC.

Stablecoins are another special type of cryptocurrency getting lots of attention this year. They are designed to minimize the unique price volatility of BTC, ETH or XRPby tying their prices to a stable asset or basket of assets, such as fiat money (U.S. dollar) or exchange-traded commodities, like gold, silver or oil. For example, Tether (USDT) maintains a peg to the U.S. dollar by allocating the same amount of U.S. dollars to its reserves as backing for the USDT coins it issues to the marketplace.

Stablecoins seem like less wobbly variants of crypto assets. They are attractive as a faster, cheaper means of payment, and some observers see a promising future in that they can promote greater financial inclusion for the world’s unbanked. But stablecoins are no less controversial than their cryptocurrency cousins because of worries over their potential scale and lack of regulation.

Andrew KarolyiConsultant to Avantis Investors

Andrew Karolyi is a Professor of Finance and currently Deputy Dean and Dean of Academic Affairs at the Cornell SC Johnson College of Business. He serves as a consultant to Avantis Investors. He was Executive Editor of the Review of Financial Studies from 2014 to 2018.

This article was originally published on December 18, 2020.

8

In response to a request from the G20, in October the Financial Stability Board (FSB) issued 10 high-level recommendations for the regulation, supervision and oversight of what it calls “global stablecoinarrangements” due to the financial stability risks these arrangements pose.3 The international group of financial policymakers has its sights on Facebook’s Libra, a proposed global stablecoin set to launch in 2021. The estimated size of the Libra asset reserve of commercial bank deposits and short-term government debt from around the world could exceed $3 trillion of assets.4 The financial stability threat from the growth of private stablecoin currencies has energized several central banks, including the European Central Bank, Monetary Authority of Singapore and People’s Bank of China, to develop their own digital currencies to compete with them.

Whether it’s the price volatility of cryptocurrencies or the potential threats that private stablecoin digital currencies pose to the global financial system that piques your interest, the time might be right for a brief primer to help frame the issues in the complex, opaque world that lies behind them. I also offer a tour of recent scholarly contributions on cryptocurrency fundamentals and the potential dark side to stimulate conversations you might be having with your clients.

Crypto 101

Bitcoin is the original and best-known cryptocurrency. A cryptocurrency is a digital asset designed to work as a medium of exchange in which individual coin (or “token”) ownership records are stored in a “distributed ledger.” Such a ledger is a shared computerized data-base, akin to a

cloud-based Smartsheet synchronized and accessible across different sites and geographies by multiple participants. To guard against manipulation, strong cryptography rules secure transaction records in the ledger to verify the transfer of coin ownership and, in general, to govern the number of coins that circulate. Decentralized control is the key feature of a cryptocurrency—that is, there is no central banking system, no central control over the coins or coin ownership.

Where the complexity and opaqueness of the operations come into play is in the mechanics of how the distributed ledger technology works. Blockchain technology is the most common way. A block chain is just a list of records, like transactions, organized into “blocks” and linked using cryptography (via a hash tag to the preceding transaction). Bitcoin was the first to use a blockchain to record and decentralize the ledger of ownership and transactions. Satoshi Nakamoto is the pseudonym of the creator(s) of Bitcoin who authored a 2008 white paper called “Bitcoin: A Peer-to-Peer Electronic Cash System,” which set forth the first blockchain data-base. It laid out the cryptography rules to ensure integrity of the system, especially to help avoid the so-called “double-spend problem,” or the risk that a digital currency coin could be spent twice.

Blockchain has many meanings and this mix of meanings creates confusion as aptly described in “The Trust Machine,” an October 2015 article in The Economist. “To understand the power of block-chain systems, and the things they can do, it is important to distinguish between three things that are commonly muddled up, namely the bitcoin currency, the specific blockchain that underpins it, and the idea of blockchains in general.”


9

Blockchains, in general, permit transactions to be gathered into blocks and recorded. They allow different servers (“nodes”) to access the resulting ledger, and they cryptographically chain blocks in chronological order. All nodes have some level of access to the ledger and node participants agree to a protocol that determines the true state of the ledger, something called “achieving consensus.” The cryptography element helps with the initiation and broadcasting of a transaction (through “digital signatures”), validation of a transaction (“proof of work”) and to chain the blocks.

The power of distributed ledgers run with blockchain technology comes down to trust. There must be trust among users in the protocol laid out by the founders or developers of the cryptocurrency.

For example, bitcoins are released slowly according to a pre-specified formula and distributed to nodes (run by “miners” who solve the cryptographic math-like puzzles) as a reward for verifying trans-actions in their decentralized ledgers. Think of the reward as a fee for an intermediating service. Basically, miners keep the network secure and well-functioning. Different cryptocurrencies have different protocols. Auroracoin (AUR), for example, is a cryptocurrency that launched with coins distributed freely and in equal amounts to all residents of Iceland.

What’s important to understand, per The Economist’s demystifying definition above, is the different things different cryptocurrencies can do. Coins are different from tokens, for example. Coins are mainly used as a medium of exchange or store of value, just like regular fiat currencies. Tokens are different as they are used like coupons or vouchers on

specific sites for specific purchases. A firm wishing to embark on a project might raise money for the project through an initial coin offering (ICO) in which the token sold allows the holder to consume some good or service the project delivers.

For example, Zilliqa (ZIL) is a platform for making apps secure and affordable to develop. ZIL tokens can be used for gaming, facilitating digital advertising through automated payments and even inter-national, low-fee payments. A successful ICO draws participants by means of a “white paper” (prospectus) that details the purpose of the offering and use of the funds raised. It also provides a homepage where the ICO takes place, and the homepage provides a bidding mechanism for the tokens. Ironic as it seems, many ICOs invite participants to bid for tokens by means of delivery of popular cryptocurrencies like ETH or BTC. Once launched, secondary market trading of both coins and tokens is active on various exchange platforms and in various jurisdictions. Most exchanges operate 24/7 every day of the year, using an open, electronic limit-order book, usually without centralized regulation or the usual rules and restrictions of equity market trading exchanges.

An increasing number of investors are dipping their toes into cryptocurrency coins and tokens and ICOs lured by the potential of high returns—notwithstanding the heightened volatility and non-existent yield—and encouraged by the growing presence of large trading firms from traditional markets. Indeed, hedge funds focused on cryptocurrencies have reported significant gains in 2020. These have sparked significant inflows from other major mainstream hedge funds and asset owners.5

But what does research say about the asset-pricing properties of


10

cryptocurrencies? About their potential for portfolio diversification and risk assessment? And what about the potential dark side from their effectively unregulated structure?

Fundamentals of Cryptocurrencies as Assets

Truth be told, research on cryptocurrencies in top, peer-reviewed journals in finance is still new.6 To my knowledge, the first published article on Bitcoin price formation, the market forces of supply and demand and digital currency-specific factors at work, was authored in 2016 by the European Commission’s Pavel Ciaian and d’Artis Kancs, and Catholic University of Leuven’s Miroslava Rajcaniova in Applied Economics.7 The authors implemented conventional time-series analysis of five years’ worth of daily returns on Bitcoin along with a correlative analysis using a variety of variables, such as Dow Jones Industrial Average Index movements and oil prices as well as the number of Bitcoins in circulation and their transactions and counts of nodes/addresses. They concluded it is the Bitcoin-specific factors that are much more importantly associated with Bitcoin price fluctuations. No factors related to macroeconomic or financial developments seemed to matter.

A 2019 study by Hu, Parlour and Rajan builds on this early effort by outlining a number of stylized facts on the asset-pricing properties of over 220 different cryptocurrencies and digital coins/tokens.8 Their study begins by documenting the remarkable skewness of the first month’s returns across 64 ICOs, mostly during 2017. While the mean return over the first month following an ICO was an enormous +46.3%, the median return was -16.1%. Several large positive outlier returns are noted, with

first trading-day returns above 1000%. The second part of the study considers the correlations among various cryptocurrencies with other assets, such as gold and the S&P 500® Index. The only “asset” for which cross-correlations were noticeably above zero is Bitcoin itself, which is not so helpful as it is another cryptocurrency. In fact, their global minimum variance portfolio across the top 50 cryptocurrencies in their efficient frontier analysis was weighted over 50% in Bitcoin alone. Correlations with respect to the S&P 500 and gold were zero.

Discouraging as the Ciaian et al. and Hu et al. studies may be about whether economic fundamentals potentially drive the price processes of cryptocurrencies, a newer 2020 working paper by Jiang, Rodriguez and Zhang offers a counterweight. Their evidence is of common trends, or long-run equilibrium relationships, among cryptocurrency and equity prices.9 The authors build from the first principles of a representative-agent model that allows for a “cointegrating” relation among real aggregate consumption growth, equity and cryptocurrency returns. The empirical findings uncover a long-run equilibrium relation in which Bitcoin contains a transitory component reflecting the high volatility of its prices, while S&P 500 prices and aggregate consumption contain a more permanent component. And what we see is innovations in consumption are able to predict both equity and Bitcoin prices, showing the primacy of macroeconomic fundamentals at work. One wonders whether other cryptocurrencies would be similarly influenced by such fundamentals.

My Cornell University colleagues, Maureen O’Hara, David Easley and Soumya Basu sought to drill down into the fundamentals of the mining-based structure of Bitcoin’s blockchain in a recently published study.10


11

They build a game-theoretic model to try to explain the market-based ecology factors that might lead to the emergence of transaction fees. The game is among blockchain miners and users, and it focuses on the mining rewards, transaction fees, prices, waiting times for processing transactions and dynamics of user participation on the blockchain. They predict that without transaction fees, the blockchain would not be viable as miners’ revenues from posting blocks are determined by Bitcoin’s predetermined protocol and are diminished over time by its reaching zero new coins by 2140. To be well functioning, these authors predict Bitcoin has had to migrate to a market-based system to survive. And encouragingly, it did so in a way that we might have predicted assuming the rational behavior of participants, like users and miners.

A Darker Side to Crypto?

There is no question policymakers and investors see the large fluctuations in cryptocurrency prices and form a belief that their volatility is due to speculative behavior by irrational agents. It was former Federal Reserve Chair Alan Greenspan in December 2013 who said Bitcoin prices were unsustainably high and it was not a currency in a normal sense. “You have to really stretch your imagination to infer what the intrinsic value of Bitcoin is,” Greenspan said. “I haven’t been able to do it. Maybe somebody else can.”11

Concerns about the speculative nature of Bitcoin were first posed in a still unpublished 2013 National Bureau of Economic Research working paper by NYU Stern’s David Yermack.12 In this insightful early study, Yermack empirically verifies that Bitcoin price volatility is much higher than that of

widely used currencies, and the daily exchange rates with U.S. dollars exhibit virtually zero correlation with widely used currencies and gold, making it difficult for owners to hedge. The more provocative argument was that Bitcoin prices of consumer goods require many decimal places with leading zeros, which can be disconcerting to retail participants, and that it faces daily hacking and theft risks, given a lack of access to a banking system with deposit insurance guarantees. This evidence led

Yermack to declare it more of a speculative investment than a currency. This early first impression stuck with many.

Intriguing newer evidence about Bitcoin’s dark side comes in a recent study by the University of Sydney’s Sean Foley and University of Technology Sydney’s Jonathan Karlsen and Talis Putnins which was published in the May 2019 special volume on fintech in The Review of Financial Studies that I helped edit.13 The focus of this study is the considerable regulatory challenge created by the rapid growth in cryptocurrencies and, especially, the anonymity they provide users. The authors were keen to uncover how much cryptocurrencies like Bitcoin have facilitated the growth of online “darknet” marketplaces in which users trade illegal goods and services. Of special interest was one such marketplace, named the “Silk Road,” in which a wide variety of illegal drugs, weapons and forgeries could be purchased using Bitcoin from 2011 until its shutdown by the FBI in 2013.

Foley, Karsen, and Putnins apply a type of network cluster analysis to identify two distinct communities in the Bitcoin blockchain, legal and illegal, by breaking down the pseudo-anonymity of the 26- to 35-character


12

alphanumeric addresses of users and by linking them to identified Bitcoin seizures from news articles and U.S. court records by law enforcement agencies. What do they find? About $76 billion of illegal activity per year involved Bitcoin, which constituted about 46% of all Bitcoin transactions. They show that the illegal share of Bitcoin activity declines with mainstream interest in Bitcoin and with the emergence of other opaquer cryptocurrencies.

Recall my mention earlier of the crypto-market-stabilizing effects of stablecoins, the cryptocurrencies that tie the price to an existing asset. This year, a new study by the University of Texas’s John Griffin and his Ph.D. student Amin Shams in The Journal of Finance should cause some pause about just how stabilizing these stablecoins might be.14 These authors investigated whether Tether, the stablecoin pegged to the U.S. dollar, influenced Bitcoin and other cryptocurrency prices during the 2017 boom and bust. Using algorithms to deconstruct blockchain alphanumeric addresses, like Foley et al., they find purchases with Tether are timed following market downturns and these result in sizable increases in Bitcoin prices. The flows appear to cluster when Bitcoin prices dip just below round-number thresholds, which investors often use as buying signals. They also find negative returns in Bitcoin before month-end reporting, which they hypothesize is associated with Tether creators liquidating Bitcoin into U.S. dollars to demonstrate sufficient reserves. Griffin and Shams infer that it is not demand forces at work, but supply constraints in inadequately backed digital coins that are contributing to inflated cryptocurrency prices.

A Final Thought About What May Come

The provocative conclusions of these teams of authors about the dark side of cryptocurrencies should help reduce regulatory uncertainty about potential consequences from this financial innovation. We need this research and much more to allow more informed policy decisions to weigh up the benefits and costs of ICOs, cryptocurrency exchanges and launching of private digital currencies. The timing could not be better.

On the one hand, S&P Dow Jones Indices recently announced plans to launch cryptocurrency index capabilities, which may provide investors an enhanced level of comfort.15 Almost simultaneously though, outgoing U.S. Securities and Exchange Commission Chair Jay Clayton, in recognizing that the Commission had rejected a number of proposals in recent years to develop exchange-traded funds linked to Bitcoin, confirmed its prevailing view that cryptocurrencies, like Bitcoin, are not securities. They are not pure stores of value, like gold, but just payment mechanisms, as their founders likely intended. Whether the new SEC chair and other regulatory bodies around the world become more open to the idea of crypto exchange-traded funds (ETFs) and other crypto investments is a question to which we all want the answer. Until we, as investors, get a little more clarity, it might be wise to just sit and wait.


13

Endnotes1 CoinMarketCap.com. Data as of 12/18/2020.2 CoinMarketCap.com. Data as of 12/18/2020.3 See Regulation, Supervision, and Oversight of ‘Global Stablecoin Arrangements: Final Report and High-Level Recommendations (Financial Stability Board, October 13, 2020).4 See Table 2 of the European Central Bank report titled, A Regulatory and Financial Stability Perspective on Global Stablecoins, co-authored by Mitsutoshi Adachi, Matteo Cominetta, Christoph Kaufmann and Anton van

der Kraaij (May 5, 2020). Section 4 uses the Libra initiative as an example due to the network effects of its global user base and significant resources available to support its launch. Their estimates, in turn, draw heavily on assumptions in the April 22, 2020, White Paper v2.0 issued by the Libra Association.

5 An Ignites.com report by Joe Morris, “$5B Guggenheim Fund Wants Bitcoin Exposure,” (November 30, 2020), said Guggenheim’s Macro Opportunities Fund’s SEC Form N-1A disclosed that it “may seek investment exposure” in cryptocurrency by investing up to 10% of its net asset value in the Grayscale Bitcoin Trust, one of the first publicly quoted and SEC-registered Bitcoin and cryptocurrency investment vehicles.

6 As executive editor of the Review of Financial Studies in 2016, I took note of the dearth of research on fintech, in general, and on cryptocurrencies, in particular. To address that deficiency, I helped launch a competition among scholars via a novel registered-reports editorial process whereby they would submit research proposals for peer review toward publication in a future volume of the journal. This volume on fintech was published in May 2019 with my editorial, titled “To FinTech and Beyond” (with Itay Goldstein and Wei Jiang) and with four publications on Bitcoin, blockchain technology and cryptocurrencies.

7 See “The Economics of Bitcoin Price Formation,” Applied Economics 2016, Volume 48, Issue 19, 1799-1815.8 “Cryptocurrencies: Stylized Facts on a New Investible Instrument,” by Albert Hu, Christine Parlour and Uday Rajan, Financial Management (2019), Volume 48, Issue 4, 1049-1068. 9 See “Macroeconomic Fundamentals and Cryptocurrency Prices: A Common Trend Approach,” by Xiaoquan Jiang, Ivan Rodriguez and Qianying Zhang, October 2020, Florida International University Working Paper.10 See “From Mining to Markets: The Evolution of Bitcoin Transaction Fees,” Journal of Financial Economics (October 2019), Volume 134, Issue 1, pages 91-109.11 See “Greenspan Says Bitcoin a Bubble Without Intrinsic Currency Value,” Bloomberg News, December 4, 2013. 12 See “Is Bitcoin a Real Currency? An Economic Appraisal,” (December 2013), National Bureau of Economic Research Working Paper No. 19747, Cambridge, MA 02138. 13 “Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed Through Cryptocurrencies?” (May 2019), Review of Financial Studies, Volume 32, Issue 5, pages 1798-1853.14 “Is Bitcoin Really Untethered?” by John Griffin and Amin Shams, June 2020, Journal of Finance, Volume 75, Issue 4, pages 1913-1964.15 PR Newswire, “S&P Dow Jones Indices Builds Crypto Indexing Capabilities with Lukka,” December 3, 2020.


1 4

Market Review

15

Snapshot

Global stocks ended 2020 on a strong note, rallying in December to cap a robust fourth quarter. Emerging markets stocks generally outperformed developed markets stocks in December and for the fourth quarter overall. Meanwhile, U.S. bonds delivered more modest gains for the month and quarter.

Global stocks delivered widespread gains against a backdrop of improving economic data and the FDA’s emergency-use authorization for two COVID-19 vaccines.

The S&P 500 Index ended December with its 33rd record close of the year. Despite significant volatility throughout the year, major U.S. stock market indices (S&P 500, Dow Jones Industrial Average, Nasdaq Composite) recorded more than 100 record closes in 2020.

The U.S. economy continued to improve, with gains in manufacturing, employment, home prices and consumer confidence. However, retail sales tumbled in November amid a surge in COVID-19 cases.

Rising coronavirus infections led to new lockdowns in the U.K. and parts of Europe. Nevertheless, most economic data generally improved, and European and U.K. stocks rallied.

Despite rising U.S. Treasury yields, the broad U.S. bond market advanced in December and for the fourth quarter, largely due to strong performance from corporate bonds. Global bonds outperformed U.S. bonds.

As of 12/31/2020

Returns (%)

INDEX 1 MO 3 MO YTD 1 YR 3 YR 5 YR 10 YR

U.S. Equity

S&P 500 3.84 12.15 18.40 18.40 14.17 15.20 13.87

Intl. Developed Markets Equity

MSCI World ex USA 4.55 15.85 7.59 7.59 4.22 7.63 5.18

Emerging Markets Equity

MSCI Emerging Markets 7.35 19.70 18.31 18.31 6.17 12.79 3.63

U.S. Fixed Income

Bloomberg Barclays U.S. Aggregate Bond

0.14 0.67 7.51 7.51 5.34 4.43 3.84

Global Fixed Income

Bloomberg Barclays Global Aggregate Bond

1.34 3.28 9.20 9.20 4.84 4.79 2.82

U.S. Cash

Bloomberg Barclays U.S.1-3 Month Treasury Bill

0.01 0.02 0.54 0.54 1.52 1.13 0.59

Data as of 12/31/2020. Performance in USD. Periods greater than one year have been annualized. Past performance is no guarantee of future results. Source: FactSet.

16

Equity Returns | Size and Style

U.S.

1 MONTH YTD

Value Growth Value Growth

Larg

e

3.83% 4.60% 2.80% 38.49%

Smal

l

7.92% 9.35% 4.63% 34.63%

Non-U.S. Developed Markets

1 MONTH YTD


Larg

e

4.12% 4.73% -3.74% 18.80%

Smal

l

6.72% 6.83% 2.58% 22.93%

Emerging Markets

1 MONTH YTD


Larg

e

8.65% 5.86% 5.25% 33.90%

Smal

l

7.45% 7.99% 12.85% 25.56%

U.S. stocks posted strong gains in December, and most broad indices delivered double-digit returns for the year.

Small-cap stocks outperformed large caps in December. Growth stocks outperformed value stocks across the capitalization spectrum.

For the year-to-date period, large-cap stocks modestly outperformed small caps. Across the capitalization range, growth stocks significantly outpaced their value counterparts.

International developed markets stocks rallied in December and outperformed their U.S. counterparts.

Similar to performance trends in the U.S., small-cap stocks outperformed their large-cap peers in December, and growth stocks outperformed value stocks across the capitalization spectrum.

Year to date, small-cap stocks outperformed large caps, and growth stocks significantly outperformed value stocks.

Emerging markets stocks rallied again in December to outperform their developed markets peers.

In terms of size, small-cap stocks modestly outperformed large-cap stocks. Value outperformed growth among large-cap stocks but underperformed in the small-cap universe.

Year to date, large-cap stocks slightly outperformed small caps, and the growth style significantly outperformed value across the size spectrum.

Data as of 12/31/2020. Performance in USD. Past performance is no guarantee of future results. Source: FactSet.U.S. Equity, International Developed Markets and Emerging Markets Equity style boxes are represented by Russell, MSCI World ex USA and MSCI Emerging Markets indices, respectively.

As of 12/31/2020

17

Equity Returns | Country

CanadaMO 3.55%YTD 5.32%

U.S.MO 4.08%YTD 20.73%

MexicoMO 6.52%YTD -1.85%

ChileMO 12.40%YTD -5.59%

ArgentinaMO 9.91%YTD 12.70%

BrazilMO 13.60%YTD -19.02%

SpainMO 2.76%YTD -4.78%

U.K.MO 5.46%YTD -10.47%

NorwayMO 5.63%YTD -1.79%

SwedenMO 3.14%YTD 23.86% Finland

MO 2.55%YTD 20.41%

RussiaMO 10.15%YTD -12.48%

ChinaMO 2.77%YTD 29.49% Japan

MO 4.13%YTD 14.48%

KoreaMO 16.55%YTD 44.64%

IndiaMO 10.19%YTD 15.55%

FranceMO 2.84%YTD 4.07%

ItalyMO 3.67%YTD 1.80%

GermanyMO 6.04%YTD 11.55%

AustraliaMO 6.02%YTD 8.73%South Africa

MO 9.79%YTD -3.96%

Data as of 12/31/2020. Performance in USD. Past performance is no guarantee of future results. Source: FactSet. Countries are represented by MSCI country indices.

As of 12/31/2020

18

Fixed-Income Returns

U.S. Treasury yields remained on an upward course during the fourth quarter, while government bond yields in Europe generally headed lower. U.S. bond returns increased for the month and quarter but underperformed global bonds.

The broad U.S. bond market advanced in December, capping off a solid quarter and a strong year.

Amid improving economic data and positive vaccine news, U.S. Treasury yields increased modestly in December. The yield on the 10-year Treasury note rose from 0.85% on November 30 to 0.92% on December 31. The yield on the two-year Treasury note declined 3 bps to 0.12%. Shorter-duration bonds generally outperformed longer-duration securities in December and for the fourth quarter.

Investment-grade corporate bonds delivered robust returns for the month and quarter, outperforming Treasuries, which declined, and other investment-grade sectors. High-yield corporate bonds rallied and outperformed investment-grade corporates.

Longer-term inflation expectations (10-year inflation breakeven rate) continued to climb, and TIPS advanced and outperformed nominal Treasuries.

Municipal bonds delivered strong monthly and quarterly gains, outperforming Treasury returns.

Returns (%)

INDEX 1 MO 3 MO YTD 1 YR 3 YR 5 YR 10 YRGlobal Fixed IncomeBloomberg Barclays Global Aggregate Bond

1.34 3.28 9.20 9.20 4.84 4.79 2.82

U.S. Fixed IncomeBloomberg Barclays U.S. Aggregate Bond

0.14 0.67 7.51 7.51 5.34 4.43 3.84

U.S. High Yield CorporateBloomberg Barclays U.S. Corporate High-Yield Bond

1.88 6.45 7.11 7.11 6.23 8.58 6.79

U.S. Investment GradeBloomberg Barclays U.S. Corporate Bond

0.44 3.05 9.89 9.89 7.05 6.73 5.63

MunicipalsBloomberg Barclays Municipal Bond

0.61 1.82 5.21 5.21 4.64 3.90 4.62

U.S. TIPSBloomberg Barclays U.S. Treasury - U.S. TIPS

1.15 1.62 10.99 10.99 5.91 5.08 3.81

U.S. TreasuriesBloomberg Barclays U.S. Treasury Bond

-0.23 -0.83 8.00 8.00 5.19 3.77 3.33

U.S. CashBloomberg Barclays U.S. 1-3 Month Treasury Bill

0.01 0.02 0.54 0.54 1.52 1.13 0.59

Data as of 12/31/2020. Performance in USD. Periods greater than one year have been annualized. Past performance is no guarantee of future results. Source: FactSet.

As of 12/31/2020

19

Global Yield Curves

Yield is a rate of return for bonds and other fixed-income securities. A yield curve is a line graph that shows yields of fixed-income securities from a single sector (e.g., Treasuries) over various maturities (e.g., 5 and 10 years) at a single point in time (e.g., 12/31/19).

As of 12/31/2020

U.S.

U.K.

E.U.

Japan

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Country/Region Yield Curves as of Latest Quarter (%)

3M 5Y 7Y 10Y 20Y 30Y

Data as of 12/31/2020Source: Bloomberg

12/31/2020

9/30/2020

12/31/2019

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3M 5Y 7Y 10Y 20Y 30Y

U.S. Treasury Yield Curve Over Time (%)

Data as of 12/31/2020Source: Bloomberg

2 0

Portfolio Updates

21

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. NAV prices are used to calculate market price performance prior to the date when the fund first traded on the New York Stock Exchange. Market performance is determined using the bid/ask midpoint at 4:00 p.m. Eastern time, when the NAV is typically calculated. Market performance does not represent the returns you would receive if you traded shares at other times. Index performance does not represent the fund's performance. It is not possible to invest directly in an index.

Performance Overview | Equity Funds

U.S. Equity ETF AVUS

Inception Date 09/24/19

Expense Ratio (%) 0.15

Total Assets ($M) 586.19

U.S. Small Cap Value ETF AVUV




International Equity ETF AVDE




International Small Cap Value ETF AVDV




Emerging Markets ETF AVEM




Expense ratio as of the most recent prospectus. Assets as of 12/31/2020.

As of 12/31/2020

Returns (%) As of Quarter End

FUND AND BENCHMARK 1 MO QTD YTD 1 YRSINCE

INCEPTIONSINCE

INCEPTIONAvantis U.S. Equity ETF at NAV 4.91 17.19 17.45 17.45 21.71 21.71

Avantis U.S. Equity ETF at Market Price 4.85 17.25 17.24 17.24 21.72 21.72

Russell 3000 Index 4.50 14.68 20.89 20.89 24.58 24.58

Avantis U.S. Small Cap Value ETF at NAV 7.65 33.34 6.60 6.60 12.22 12.22

Avantis U.S. Small Cap Value ETF at Market Price 7.64 33.39 6.72 6.72 12.26 12.26

Russell 2000 Value Index 7.92 33.36 4.63 4.63 10.42 10.42

Avantis International Equity ETF at NAV 5.71 17.35 7.84 7.84 12.84 12.84

Avantis International Equity ETF at Market Price 5.68 16.95 8.05 8.05 12.86 12.86

MSCI World ex USA IMI Index 4.87 16.10 8.32 8.32 12.84 12.84

Avantis International Small Cap Value ETF at NAV 8.40 22.47 4.71 4.71 12.89 12.89

Avantis International Small Cap Value ETF at Market Price 8.28 22.05 4.81 4.81 12.88 12.88

MSCI World ex USA Small Cap Index 6.77 17.55 12.78 12.78 18.72 18.72

Avantis Emerging Markets ETF at NAV 8.22 21.67 15.24 15.24 19.81 19.81

Avantis Emerging Markets ETF at Market Price 7.73 20.78 14.53 14.53 19.84 19.84

MSCI Emerging Markets IMI Index 7.39 19.95 18.39 18.39 22.60 22.60

Data for month-end as of 12/31/2020. Data for quarter-end as of 12/31/2020. Performance in USD, net of fees. Periods greater than one year have been annualized. Source: FactSet.

As of Month-End

22

U.S. Equity ETF | Performance Commentary

The portfolio outperformed its benchmark for the fourth quarter.

The portfolio’s larger allocation to smaller-cap companies versus the benchmark and underweight to mega caps contributed to relative performance. Small- and mid-cap companies generally outperformed larger-cap companies during the period.

The portfolio's exclusion of real estate investment trusts (REITs) also aided relative results, as REITs generally underperformed.


As of 12/31/2020

Size Mega Large Mid Small Micro REITs

Size Definitions Largest 100 stocks

Next 400 largest

Next 400 largest

Next 800 largest

Remaining stocks

−

Benchmark Return-Qtr. (%) 11.84 16.90 24.42 30.51 27.67 9.11

Data from 9/30/2020 to 12/31/2020. Source: FactSet.

44.8

31.9

11.9

5.9 5.30.0

58.2

26.4

6.42.9 2.4 3.3

0

10

20

30

40

50

60

70

Ave

rage

Wei

ght (

%)

Fund Benchmark

Average Allocation by Company SizeReturns (%)


INCEPTION*

NAV 4.91 17.19 17.45 17.45 21.71

Market Price 4.85 17.25 17.24 17.24 21.72

Russell 3000 Index 4.50 14.68 20.89 20.89 24.58

*Inception Date: 9/24/2019. Data as of 12/31/2020. Performance in USD, net of fees. Periods greater than one year have been annualized. Source:FactSet.

23

U.S. Equity ETF | Portfolio Composition

Size and Style Allocation (%)

FUND BOOK-TO-MARKET AND PROFITABILITY

HIGH MID LOW

SIZE

MEGA 16.99 21.72 5.23

LARGE/MID 14.53 23.47 5.95

SMALL/MICRO 5.52 5.77 0.54

BENCHMARK BOOK-TO-MARKET AND PROFITABILITY

HIGH MID LOW

SIZE

MEGA 16.29 29.60 11.43

LARGE/MID 5.94 17.40 9.94

SMALL/MICRO 1.37 2.99 1.28

Data as of 12/31/2020. Charts show weights in various book/market and profitability buckets (highest 25%, middle 50%, and lowest 25%) across market capitalizations. Excludes REITs. Source: FactSet.

Key Characteristics

Benchmark: Russell 3000 Index FUND BENCHMARK

Weighted Average Market Cap $319.6 B $409.5 B

Weighted Average Book/Market 0.27 0.18

Weighted Average Profits/Book 0.52 0.54

Number of Holdings 2,028 3,060Data as of 12/31/2020. Source: FactSet.

Sector Allocation (%)

FUND BENCHMARK

Information Technology 22.56 27.15

Consumer Discretionary 15.27 12.42

Financials 14.15 10.72

Industrials 12.51 9.25

Health Care 11.54 13.98

Communication Services 7.34 9.82

Consumer Staples 5.10 5.87

Materials 4.69 2.82

Energy 3.57 2.14

Utilities 2.96 2.67

Real Estate 0.31 3.18Data as of 12/31/2020. Source: FactSet.

As of 12/31/2020

24

U.S. Small Cap Value ETF | Performance Commentary

The portfolio performed in line with its benchmark for the quarter.

The portfolio's lower allocation versus the benchmark to micro-cap stocks aided relative results.

An overweight versus the benchmark to companies with the highest value and profitability characteristics weighed on relative results.

The portfolio's exclusion of real estate investment trusts (REITs) contributed to relative performance, as REITs underperformed for the period.

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. NAV prices are used to calculate market price performance prior to the date when the fund first traded on the New York Stock Exchange. Market performance is determined using the bid/ask midpoint at 4:00 p.m. Eastern time, when the NAV is typically calculated. Market performance does not represent the returns you would receive if you traded shares at other times. Index performance does not represent the fund's performance. It is not possible to invest directly in an index.A Note About Risk: Historically, small- and/or mid-cap stocks have been more volatile than the stocks of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.

As of 12/31/2020

Quartile 1 2 3 4 REITs

Book/Market and Profitability

Highest Medium-High Medium-Low Lowest -

Benchmark Return-Qtr. (%) 32.31 36.21 34.55 38.20 24.15


79.7

18.6

1.3 0.2 0.0

30.225.4

17.311.8 11.1

0

10

20

30

40

50

60

70

80

90

Ave

rage

Wei

ght (

%)

Fund Benchmark

Average Allocation by Book/Market and Profitability QuartileReturns (%)


INCEPTION*

NAV 7.65 33.34 6.60 6.60 12.22

Market Price 7.64 33.39 6.72 6.72 12.26

Russell 2000 Value Index 7.92 33.36 4.63 4.63 10.42


25

U.S. Small Cap Value ETF | Portfolio Composition



HIGH MID LOW

SIZE

MEGA − − −

LARGE/MID 12.85 2.25 −

SMALL/MICRO 69.81 14.75 0.04


HIGH MID LOW

SIZE

MEGA − − 1.03

LARGE/MID 2.71 2.14 2.37

SMALL/MICRO 26.57 41.12 8.96

Data as of 12/31/2020. Charts show weights in various book/market and profitability buckets (highest 25%, middle 50% and lowest 25%) across market capitalizations. Excludes REITs. Source: FactSet.

Key Characteristics

Benchmark: Russell 2000 Value Index FUND BENCHMARK




Number of Holdings 544 1,486Data as of 12/31/2020. Source: FactSet.


FUND BENCHMARK




Energy 11.51 4.19

Materials 7.72 6.12





Real Estate 0.24 9.08

Utilities 0.00 4.48Data as of 12/31/2020. Source: FactSet.

As of 12/31/2020

26

International Equity ETF | Performance Commentary


The portfolio’s overweight versus the benchmark to companies with the most attractive value and profitability characteristics was the primary driver of relative outperformance.

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. NAV prices are used to calculate market price performance prior to the date when the fund first traded on the New York Stock Exchange. Market performance is determined using the bid/ask midpoint at 4:00 p.m. Eastern time, when the NAV is typically calculated. Market performance does not represent the returns you would receive if you traded shares at other times. Index performance does not represent the fund's performance. It is not possible to invest directly in an index.A Note About Risk: International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.

See Appendix for more information about this chart.

As of 12/31/2020






36.5

27.8

21.1

13.8

0.0

23.8 24.8 24.0 24.4

2.2

0

10

20

30

40

50

Ave

rage

Wei

ght (

%)

Fund Benchmark



INCEPTION*

NAV 5.71 17.35 7.84 7.84 12.84

Market Price 5.68 16.95 8.05 8.05 12.86

MSCI World ex USA IMI Index 4.87 16.10 8.32 8.32 12.84


27

International Equity ETF | Portfolio Composition



HIGH MID LOW

SIZE

MEGA 10.15 16.92 4.24

LARGE/MID 19.00 23.36 5.84

SMALL/MICRO 9.53 7.94 2.23


HIGH MID LOW

SIZE

MEGA 10.88 24.60 11.71

LARGE/MID 10.47 20.12 10.10

SMALL/MICRO 2.72 3.97 2.82


Key Characteristics

Benchmark: MSCI World ex USA IMI FUND BENCHMARK






FUND BENCHMARK




Materials 11.54 8.68





Energy 4.06 3.73

Utilities 4.04 3.83

Real Estate 2.72 4.19Data as of 12/31/2020. Source: FactSet.

Top 5 Country Allocations (%)

FUND BENCHMARK

Japan 23.18 23.50

United Kingdom 13.30 13.26

Canada 9.10 9.03

France 9.05 9.01

Switzerland 8.16 8.18Data as of 12/31/2020. Source: FactSet.

As of 12/31/2020

28

International Small Cap Value ETF | Performance Commentary


An emphasis on scurities with the highest combined value and profitability characteristics drove the portfolio's relative outperformance.

The portfolio's exclusion of real estate investment trusts (REITs) aided relative results. REITs underperformed for the period.

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. NAV prices are used to calculate market price performance prior to the date when the fund first traded on the New York Stock Exchange. Market performance is determined using the bid/ask midpoint at 4:00 p.m. Eastern time, when the NAV is typically calculated. Market performance does not represent the returns you would receive if you traded shares at other times. Index performance does not represent the fund's performance. It is not possible to invest directly in an index.A Note About Risk: International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks. Historically, small- and/or mid-cap stocks have been more volatile than the stocks of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.


As of 12/31/2020






70.7

20.7

4.8 2.60.0

20.024.4 24.3 22.8

7.3

0

10

20

30

40

50

60

70

80

Ave

rage

Wei

ght (

%)

Fund Benchmark



INCEPTION*

NAV 8.40 22.47 4.71 4.71 12.89

Market Price 8.28 22.05 4.81 4.81 12.88

MSCI World ex USA Small Cap Index 6.77 17.55 12.78 12.78 18.72


29

International Small Cap Value ETF | Portfolio Composition



HIGH MID LOW

SIZE

MEGA − − −

LARGE/MID 8.56 4.13 0.07

SMALL/MICRO 64.86 18.93 2.26


HIGH MID LOW

SIZE

MEGA 0.04 0.61 0.07

LARGE/MID 3.11 11.78 5.77

SMALL/MICRO 17.07 36.05 17.27


Key Characteristics

Benchmark: MSCI World ex USA Small Cap Index FUND BENCHMARK




Number of Holdings 970 2,553Data as of 12/31/2020. Source: FactSet.


FUND BENCHMARK





Energy 7.21 2.30








FUND BENCHMARK

Japan 26.11 26.29

United Kingdom 16.01 16.14

Australia 8.54 8.33

Canada 7.95 8.22

Sweden 6.95 6.92Data as of 12/31/2020. Source: FactSet.

As of 12/31/2020

30

Emerging Markets Equity ETF | Performance Commentary


The portfolio’s overweight relative to the benchmark to companies with the highest value and profitability characteristics contributed to relative performance.

The portfolio’s exclusion of Saudi Arabia and Qatar, where custodial costs are still relatively high, aided relative results, as those countries underperformed.

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. NAV prices are used to calculate market price performance prior to the date when the fund first traded on the New York Stock Exchange. Market performance is determined using the bid/ask midpoint at 4:00 p.m. Eastern time, when the NAV is typically calculated. Market performance does not represent the returns you would receive if you traded shares at other times. Index performance does not represent the fund's performance. It is not possible to invest directly in an index.A Note About Risk: International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks. Historically, small- and/or mid-cap stocks have been more volatile than the stocks of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.


As of 12/31/2020


Book/Market and Profitability Highest Medium-High Medium-Low Lowest -



37.0

27.1

21.3

13.5

0.0

23.5

27.8

22.8 24.0

0.20

10

20

30

40

50

Aver

age

Wei

ght (

%)

Fund Benchmark



INCEPTION*

NAV 8.22 21.67 15.24 15.24 19.81

Market Price 7.73 20.78 14.53 14.53 19.84

MSCI Emerging Markets IMI Index 7.39 19.95 18.39 18.39 22.60


31

Emerging Markets Equity ETF | Portfolio Composition



HIGH MID LOW

SIZE

MEGA 12.45 21.28 6.91

LARGE/MID 13.21 15.50 3.41

SMALL/MICRO 13.32 9.68 2.55


HIGH MID LOW

SIZE

MEGA 12.54 28.14 15.53

LARGE/MID 7.88 13.71 6.97

SMALL/MICRO 4.32 5.62 3.10

Data as of 12/31/2020. Charts show weights in various book/market and profitability buckets (highest 25%, middle 50%, and lowest 25%) across market capitalizations. Excludes REITs. Source: FactSet.

Key Characteristics

Benchmark: MSCI Emerging Markets IMI Index FUND BENCHMARK






FUND BENCHMARK








Energy 4.46 4.71





FUND BENCHMARK

China 35.25 36.14

South Korea 15.17 13.99

Taiwan 14.94 13.62

India 10.84 9.89

Brazil 5.84 5.26Data as of 12/31/2020. Source: FactSet.

As of 12/31/2020

32


Performance Overview | Fixed Income Funds

Returns (%) As of Quarter End

FUND AND BENCHMARK 1 MOSINCE

INCEPTIONSINCE

INCEPTIONAvantis Core Fixed Income ETF at NAV 0.33 0.87 0.87

Avantis Core Fixed Income ETF at Market Price 0.35 1.03 1.03

Bloomberg Barclays Aggregate Bond Index 0.14 0.61 0.61

Avantis Short Term Fixed Income ETF at NAV 0.23 0.46 0.46

Avantis Short Term Fixed Income ETF at Market Price 0.26 0.58 0.58

Bloomberg Barclays 1-5 Year US Gov/Credit Index 0.17 0.29 0.29

Data for month-end as of 12/31/2020. Data for quarter-end as of 12/31/2020. Performance in USD, net of fees. Periods greater than one year have been annualized. Source: FactSet.

As of Month End Core Fixed Income ETF AVIG




Short Term Fixed Income AVSF




Expense ratio as of the most recent prospectus. Assets as of 12/31/2020.

As of 12/31/2020

What’s New at Avantis

In December we expanded our fixed income lineup to include a core municipal bond strategy, the Avantis Core Municipal Fixed Income ETF. Additional information about this strategy will be included in next month’s field guide, but in the interim please visit our website to learn more about this strategy.

Ticker AVMUInception Date 12/8/2020Benchmark S&P National AMT-Free Municipal Bond IndexExpense Ratio 0.15%

33

Core Fixed Income ETF | Performance Commentary

The portfolio outperformed its benchmark from inception through the end of the quarter.

The portfolio’s overweight versus the benchmark to corporate credit aided relative results. Corporates outperformed other investment-grade fixed-income sectors.

The portfolio maintained a slightly longer duration than the benchmark.

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. NAV prices are used to calculate market price performance prior to the date when the fund first traded on the New York Stock Exchange. Market performance is determined using the bid/ask midpoint at 4:00 p.m. Eastern time, when the NAV is typically calculated. Market performance does not represent the returns you would receive if you traded shares at other times. Index performance does not represent the fund's performance. It is not possible to invest directly in an index.A Note About Risk: Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline. Lower-rated securities in which the fund invests are subject to greater credit risk, default risk and liquidity risk. If the portfolio managers’ considerations are inaccurate or misapplied, the fund’s performance may suffer. Derivatives may be more sensitive to changes in market conditions and may amplify risks.

As of 12/31/2020

Returns (%)


INCEPTION*

NAV 0.33 0.87

Market Price 0.35 1.03

Bloomberg Barclays Aggregate Bond Index 0.14 0.61*Inception Date: 10/13/2019. Data as of 12/31/2020. Performance in USD, net of fees. Periods greater than one year have been annualized. Source:FactSet.

34

Core Fixed Income ETF | Portfolio Composition

Find the prospectus at AvantisInvestors.com

As of 12/31/2020

Key Characteristics

Benchmark: Bloomberg Barclays U.S. Aggregate Bond Index FUND BENCHMARK

Effective Duration (years) 6.77 6.26

Yield to Maturity (%) 1.22 1.12

SEC Yield (%) 0.93 N/A

OAS (bps) 48.97 41.12Data as of 12/31/2020. Source: American Century Investments, Bloomberg Index Services Ltd., State Street. *Data is preliminary and subject to change.


FUND BENCHMARK

Government 29.61% 37.01%

Agencies 1.51% 1.63%

Securitized 19.42% 29.35%

Credit 58.69% 30.45%

Emerging Markets 0.00% 1.55%

Cash and Cash Equivalents -9.23% 0.00%Data as of 12/31/2020. Source: American Century Investments, Bloomberg Index Services Ltd. *Data is preliminary and subject to change.

Credit Quality

FUND BENCHMARK

U.S. Government 50.53% 66.22%

AAA 3.49% 3.84%

AA 5.81% 3.11%

A 22.47% 12.02%

BBB 26.40% 14.80%

BB 0.52% 0.00%

Cash and Cash Equivalents -9.23% 0.00%Data as of 12/31/2020. Source: American Century Investments, Bloomberg Index Services Ltd. *Data is preliminary and subject to change.

Duration Breakdown

FUND BENCHMARK

0-2 -2.08% 14.38%

2-4 21.59% 36.78%

4-6 29.28% 16.46%

6-8 27.70% 9.32%

8-10 12.69% 4.13%

10-15 5.91% 5.76%

15+ 4.90% 13.18%Data as of 12/31/2020. Source: American Century Investments, Bloomberg Index Services Ltd. *Data is preliminary and subject to change.

35

Short-Term Fixed Income ETF | Performance Commentary

The portfolio outperformed its benchmark from inception through the end of the quarter.

The portfolio’s overweight versus the benchmark in corporate credit contributed to relative results.

The portfolio maintained a duration similar to the benchmark.

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. NAV prices are used to calculate market price performance prior to the date when the fund first traded on the New York Stock Exchange. Market performance is determined using the bid/ask midpoint at 4:00 p.m. Eastern time, when the NAV is typically calculated. Market performance does not represent the returns you would receive if you traded shares at other times. Index performance does not represent the fund's performance. It is not possible to invest directly in an index.A Note About Risk: Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline. Lower-rated securities in which the fund invests are subject to greater credit risk, default risk and liquidity risk. If the portfolio managers’ considerations are inaccurate or misapplied, the fund’s performance may suffer. Derivatives may be more sensitive to changes in market conditions and may amplify risks.

As of 12/31/2020

Returns (%)


INCEPTION*

NAV 0.23 0.46

Market Price 0.26 0.58

Bloomberg Barclays 1-5 Year US Gov/Credit Index 0.17 0.29*Inception Date: 10/13/2019. Data as of 12/31/2020. Performance in USD, net of fees. Periods greater than one year have been annualized. Source:FactSet.

36

Short-Term Fixed Income ETF | Portfolio Composition

Find the prospectus at AvantisInvestors.com

As of 12/31/2020

Key Characteristics

Benchmark: Bloomberg Barclays 1-5 Year US Gov/Credit Index FUND BENCHMARK

Effective Duration (years) 2.76 2.75

Yield to Maturity (%) 0.46 0.37

SEC Yield (%) 0.39 N/A

OAS (bps) 22.02 14.33Data as of 12/31/2020. Source: American Century Investments, Bloomberg Index Services Ltd., State Street. *Data is preliminary and subject to change.


FUND BENCHMARK

Government 39.89% 62.64%

Agencies 5.50% 3.78%

Securitized 0.00% 0.00%

Credit 54.37% 32.52%

Emerging Markets 0.00% 1.05%

Cash and Cash Equivalents 0.24% 0.00%Data as of 12/31/2020. Source: American Century Investments, Bloomberg Index Services Ltd.*Data is preliminary and subject to change.

Credit Quality

FUND BENCHMARK

U.S. Government 45.39% 66.40%

AAA 7.97% 5.04%

AA 6.56% 3.38%

A 19.11% 12.67%

BBB 20.73% 12.51%

Cash and Cash Equivalents 0.24% 0.00%Data as of 12/31/2020. Source: American Century Investments, Bloomberg Index Services Ltd.*Data is preliminary and subject to change.

Duration Breakdown

FUND BENCHMARK

0-2 37.50% 31.53%

2-4 42.16% 51.10%

4-6 20.34% 17.37%Data as of 12/31/2020. Source: American Century Investments, Bloomberg Index Services Ltd.*Data is preliminary and subject to change.

3 7

Appendix

38




1-Mo. Benchmark Return (%) 4.15 4.26 2.63 5.38 -1.37


36.3

25.323.1

12.9

0.0

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Fund Benchmark

Average Allocation by Book/Market and Profitability Quartile

How to Interpret Book/Market and Profitability Charts

11 We sort the underlying stocks in our universe from highest to lowest based on a proprietary calculation using book-to-market, or B/M, and profitability ratios. B/M is a ratio that compares a company’s book value relative to its market capitalization. Profitability is a ratio used to measure a company’s profitability relative to its book value. We view stocks with higher B/M and profitability ratios more favorably.

After arranging the stocks in the universe, we divide the holdings into fourths, or quartiles. The top 25% of stocks are placed in the “highest” quartile, while the bottom 25% of stocks are placed in the “lowest” quartile. Our equity strategies generally do not invest in REITs, so these stocks are bucketed separately.

We show the average weight of the stocks in each quartile over the month for our portfolio and the benchmark so that you can compare the two allocations.

We believe stocks in the higher quartiles have higher expected future returns*—that’s why you’ll see our portfolios generally allocate more to these types of stocks than the benchmark does. Conversely, we believe stocks in the lower quartiles have lower expected future returns, so our portfolios generally hold less in these stocks than the benchmark. It’s important to note, however, that higher B/M and profitability stocks do not always outperform.

We also show the performance of the stocks in the benchmark based on the B/M and profitability quartile they’re in. If the higher quartiles outperform the lower quartiles, then in general, we would expect our portfolio to benefit from its larger allocation to these outperforming stocks. If, however, the lower quartiles outperform the higher quartiles, then in general, we would expect our portfolio to lag the benchmark.

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*Our funds seek securities of companies that we expect to have higher returns by placing an enhanced emphasis on securities of companies with smaller market capitalizations and securities of companies we define as high profitability or value companies. Conversely, the funds seek to underweight or exclude securities we expect to have lower returns, such as securities of large companies with lower levels of profitability and higher prices relative to their book values or other financial metrics. To identify small capitalization, high profitability or value companies, the portfolio managers employ a proprietary calculation using reported and estimated company financials and market data including, but not limited to, shares outstanding, book value and its components, cash flows, revenue, expenses, accruals and income. Value companies may be defined as those with lower price relative to book value ratio or other fundamental value. High profitability companies may be defined as those with higher cash-based operating profitability. The portfolio managers may also consider other factors when selecting a security, including industry classification, past performance of the security relative to other securities, liquidity, float, and tax, governance or cost considerations, among others.

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Glossary

Agencies: Agency securities are debt securities issued by U.S. government agencies such as the Federal Home Loan Bank and the Federal Farm Credit Bank. Some agency securities are backed by the full faith and credit of the U.S. government, while others are guaranteed only by the issuing agency.

Basis points (BPS): Basis points are used in financial literature to express values that are carried out to two decimal places (hundredths of a percentage point), particularly ratios, such as yields, fees, and returns. Basis points describe values that are typically on the right side of the decimal point--one basis point equals one one-hundredth of a percentage point (0.01%).

Bloomberg Barclays Global Aggregate Bond Index: A flagship measure of global investment-grade debt from 24 local currency markets. This multicurrency benchmark includes Treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.

Bloomberg Barclays Global U.S. Treasury - U.S. TIPS Index: Consists of Treasury inflation-protected securities issued by the U.S. Treasury with a remaining maturity of one year or more.

Bloomberg Barclays Municipal Bond Index: A market value-weighted index designed for the long-term tax-exempt bond market.

Bloomberg Barclays U.S. 1-3 Month Treasury Bill Index: A subindex of the Bloomberg Barclays U.S. Short Treasury Index, the Bloomberg Barclays U.S. 1-3 Month Treasury Bill Index is composed of zero-coupon Treasury bills with a maturity between one and three months.

Bloomberg Barclays 1-5 Year U.S. Government/Credit Index: Tracks the market for investment grade, US dollar-denominated, fixed-rate treasuries, government-related and corporate securities.

Bloomberg Barclays U.S. Aggregate Bond Index: Represents securities that are taxable, registered with the Securities and Exchange Commission, and U.S. dollar-denominated. The index covers the U.S. investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities.

Bloomberg Barclays U.S. Corporate Bond Index: Measures the investment-grade, fixed-rate, taxable corporate bond market. It includes U.S. dollar-denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers.

Bloomberg Barclays U.S. Corporate High Yield Bond Index: Measures the U.S. dollar-denominated, high-yield (non-investment grade), fixed-rate corporate bond market.

Bloomberg Barclays U.S. Treasury Index: Measures U.S. dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury. Treasury bills are excluded by the maturity constraint but are part of a separate Short Treasury Index.

Book-to-Market Ratio: Compares a company’s book value relative to its market capitalization. Book value is generally a firm’s reported assets minus its liabilities on its balance sheet. A firm's market capitalization is calculated by taking its share price and multiplying it by the number of shares it has outstanding.

Credit Quality: A measure of the financial strength of the issuer of a security, and the ability of that issuer to provide timely payment of interest and principal to investors in the issuer's securities. Common measurements of credit quality include the credit ratings provided by credit rating agencies such as Standard & Poor's and Moody’s.

Dow Jones Industrial Average: An average made up of 30 blue-chip stocks that trade daily on the New York Stock Exchange.

Duration: Measures how long it takes, in years, for an investor to be repaid a bond’s price by the bond’s total cash flows. It is also a measure of a bond’s interest rate sensitivity. The longer the duration, the more sensitive a bond is to interest rate shifts.

Effective Duration: The average duration of all the bonds in a fund. It provides an indication of how a fund’s net asset value (NAV) will change as interest rates change.

Emerging Markets Debt: Debt issued by countries whose economies are considered to bedeveloping or emerging from underdevelopment.

Exchange-Traded Fund (ETF): An ETF represents a basket of securities that trades on an exchange, similar to a stock. An ETF differs from a mutual fund in that its share price fluctuates all day as investors buy and sell the ETF. A mutual fund’s net asset value (NAV) is calculated once per day after the market closes.

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Glossary

Market Capitalization: The market value of all the equity of a company's common and preferred shares. It is usually estimated by multiplying the stock price by the number of shares for each share class and summing the results.

MSCI Emerging Markets Index: Captures large- and mid-cap representation across 26 emerging markets countries. With 1,202 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

MSCI Emerging Markets IMI Index: Captures large-, mid- and small-cap representation across emerging markets countries, covering approximately 99% of the free float-adjusted market capitalization in each country.

MSCI Emerging Markets Large Cap Growth Index: Captures large-cap securities exhibiting overall growth style characteristics across 26 emerging markets countries.

MSCI Emerging Markets Large Cap Value Index: Captures large-cap securities exhibiting overall value style characteristics across 26 emerging markets countries.

MSCI Emerging Markets Small Cap Growth Index: Captures small-cap securities exhibiting overall growth style characteristics across 26 emerging markets countries.

MSCI Emerging Markets Small Cap Value Index: Captures small-cap securities exhibiting overall value style characteristics across 26 emerging markets countries.

MSCI World ex USA Index: Captures large- and mid-cap representation across 22 of 23 developed markets countries, excluding the U.S. With 1,013 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

MSCI World ex USA IMI Index: Captures large-, mid- and small-cap representation across 22 of 23 developed markets countries, excluding the U.S. With 3,565 constituents, the index covers approximately 99% of the free float-adjusted market capitalization in each country.

MSCI World ex USA Large Cap Growth Index: Captures large-cap securities exhibiting overall growth style characteristics across 22 of 23 developed markets countries, excluding the U.S.

MSCI World ex USA Large Cap Value Index: Captures large-cap securities exhibiting overall value style characteristics across 22 of 23 developed markets countries, excluding the U.S.

MSCI World ex USA Small Cap Growth Index: Captures small-cap securities exhibiting overall growth style characteristics across 22 of 23 developed markets countries, excluding the U.S.

MSCI World ex USA Small Cap Value Index: Captures small-cap securities exhibiting overall value style characteristics across 22 of 23 developed markets countries, excluding the U.S.

Option-Adjusted Spread (OAS): Measures the difference between the yield of a bond with an embedded option and the yield on Treasuries. Call options give the issuer the right to redeem the bond prior to maturity at a preset price, and put options allow the holder to sell the bond back to the company on certain dates. The OAS adjusts the spread to account for these potential changing cash flows.

Profitability-to-Book Ratio: Used to measure a company’s profitability relative to its book value. A company's profitability is generally calculated by subtracting operating expenses from its gross profit. Book value is generally a firm’s reported assets minus its liabilities on its balance sheet.

Quality: Describes the portfolio of the fund in terms of the quality ratings of the securities it holds. All U.S. government securities are included in the U.S. Government category. Cash and cash equivalents include payable amounts related to securities purchased but not settled at period end. Credit quality ratings on underlying securities of a fund are obtained from three Nationally Recognized Statistical Rating Organizations (NRSROs), Standard & Poor's, Moody's and Fitch. Ratings are converted to the equivalent Standard & Poor's rating category for purposes of presentation. The median rating is used for securities rated by all three NRSROs. The common rating is used when two of the three NRSROs agree. The lower rating is used when only two NRSROs rate a security. A nonrated designation is assigned when a public rating is not available for a security. This designation does not necessarily indicate low credit quality. The letter ratings are provided to indicate the credit worthiness of the underlying bonds in the portfolio and generally range from AAA (highest) to D (lowest). Includes payable amounts related to securities purchased but not settled at period end. Due to rounding, these values may exceed 100%. Negative weights, when quoted, may be due to open security or capital stock trades at period end and/or unrealized loss on derivative positions as a percent of net assets at period end. Fund holdings subject to change without notice.

41

Glossary

Russell 1000® Growth Index: Measures the performance of those Russell 1000 Index companies (the 1,000 largest publicly traded U.S. companies, based on total market capitalization) with higher price-to-book ratios and higher forecasted growth values.

Russell 1000® Value Index: Measures the performance of those Russell 1000 Index companies (the 1,000 largest publicly traded U.S. companies, based on total market capitalization) with lower price-to-book ratios and lower forecasted growth values.

Russell 2000® Growth Index: Measures the performance of those Russell 2000 Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S. companies, based on total market capitalization) with higher price-to-book ratios and higher forecasted growth values.

Russell 2000® Value Index: Measures the performance of those Russell 2000 Index companies (the 2,000 smallest of the 3,000 largest publicly traded U.S. companies, based on total market capitalization) with lower price-to-book ratios and lower forecasted growth values.

Russell 3000® Index: Measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.

S&P 500® Index: A market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The index is widely regarded as the best gauge of large-cap U.S. equities.

S&P National AMT-Free Municipal Bond Index: A broad, comprehensive, market value-weighted index designed to measure the performance of the investment-grade tax-exempt U.S. municipal bond market. Bonds issued by U.S. territories, including Puerto Rico, are excluded from this index. It is not possible to invest directly in an index.

SEC Yield: A calculation based on a 30-day period ending on the last day of the previous month. It is computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period.

Securitized Debt: Debt resulting from the process of aggregating debt instruments into a pool of similar debts, then issuing new securities backed by the pool (securitizing the debt). Examples include asset-backed and mortgage-backed securities.

Treasury Inflation-Protected Securities (TIPS): TIPS are a special type of U.S. Treasury security that are indexed to inflation as measured by the Consumer Price Index, or CPI. At maturity, TIPS are guaranteed by the U.S. government to return at least their initial $1,000 principal value, or that principal value adjusted for inflation, whichever amount is greater. In addition, as their principal values are adjusted for inflation, their interest payments also adjust.

Weighted Average Book-to-Market: An average book-to-market ratio resulting from the multiplication of each security’s book-to-market by its weight in the portfolio.

Weighted Average Market Capitalization: An average market capitalization resulting from the multiplication of each security’s market capitalization by its weight in the portfolio.

Weighted Average Profitability-to-Book: An average profitability-to-book ratio resulting from the multiplication of each security’s profitability-to-book by its weight in the portfolio.

Yield to Maturity: The rate of return an investor will receive if an interest-bearing security, such as a bond, is held to its maturity date. It considers total annual interest payments, the purchase price, the redemption value, and the amount of time remaining until maturity.

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Disclosures

You should consider the fund’s investment objectives, risks, and charges and expenses carefully before you invest. The fund’sprospectus or summary prospectus, which can be obtained by visiting avantisinvestors.com or by calling 833-9AVANTIS, contains this and other information about the fund, and should be read carefully before investing. Investments are subject tomarket risk. If this material contains any yield in addition to the 30-day SEC yield, the material must be preceded or accompanied by a current or summary prospectus.Exchange Traded Funds (ETFs) are bought and sold through an exchange trading at market price (not NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.

Historically, small- and/or mid-cap stocks have been more volatile than the stocks of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.

This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.

Portfolio holdings are as of date indicated and subject to change. It is not possible to invest directly in an index.

The opinions expressed are those of the portfolio team and are no guarantee of the future performance of any Avantis fund. This information is for an educational purpose only and is not intended to serve as investment advice. References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline.

Derivatives may be more sensitive to changes in market conditions and may amplify risks.

Exchange Traded Funds (ETFs): Foreside Fund Services, LLC - Distributor, not affiliated with American Century Investments Services, Inc.

©2020 American Century Proprietary Holdings, Inc. All rights reserved. The contents of this Avantis Investors presentation are protected by applicable copyright and trademark laws. No permission is granted to copy, redistribute, modify, post or frame any text, graphics, images, trademarks, designs or logos.

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Avantis - ETF Field Guide...2016 elections) to 39.2% (after FDR was elected in 1932). Value premiums were stronger after Democrats’ victories (8.5% vs. 3.6% for Republicans), as