Avantis Emerging Markets ex-China Equity ETF (AVXC)

The rise of systematic, factor-tilted approaches to emerging-market investing traces back to the early 2000s, when quantitative researchers began demonstrating that simple screens for profitability, financial strength, and valuation could outperform traditional market-capitalization weighting. By the mid-2010s, American Century Investments launched Avantis, a subsidiary focused entirely on building factor-tilted ETFs across major asset classes. As Avantis grew its suite of emerging-market products, a particular constraint became increasingly prominent among investors: the dominance of China in any broad emerging-markets index. AVXC emerged as the firm’s answer to that concern.

The China problem in traditional emerging-markets indices

For most of the 2000s and 2010s, the standard way to gain emerging-markets exposure was through a capitalization-weighted ETF. These funds simply held the largest stocks in developing economies, weighted by market capitalization. China’s sheer size — its enormous banks, tech firms, and manufacturers — meant that China alone could comprise 30 to 40 percent of such an index. For investors seeking emerging-market growth but worried about China’s regulatory environment, its geopolitical tensions, or state control of key sectors, there was no clean solution. Investors who wanted India or Brazil had to accept China’s concentration as the price of admission.

Academic research on factor investing was simultaneously showing that systematic screens for quality and value — strong profitability, low debt, reasonable valuation — outperformed passive indices over long periods. Avantis, founded during this moment, bet that applying these screens to specific geographies and asset classes would create better outcomes than capitalization-weighted alternatives.

AVXC’s founding and initial structure

AVXC was launched in the late 2010s, when emerging-markets sentiment had begun to sour. Trade tensions between the U.S. and China had escalated, the U.S. dollar had strengthened, and U.S. mega-cap technology stocks had dramatically outperformed emerging markets. It was an unfashionable time to launch an emerging-markets fund. But Avantis positioned AVXC as different: it simply excluded China by design, immediately reshaping the universe. India, Brazil, Mexico, Thailand, Indonesia, South Korea, and Vietnam — among many others — stepped in as larger holdings.

This China exclusion was not a passive feature. It was a structural bet that political, regulatory, and valuation risks in mainland China were significant enough to justify sacrificing exposure to the world’s second-largest economy. Investors buying AVXC were implicitly accepting that conviction.

The quality and value screens from inception

From launch, AVXC applied Avantis’s quantitative criteria to the ex-China universe: screening for profitability (strong returns on capital), financial strength (low debt, stable earnings), and reasonable valuation. The fund held companies that passed these mechanical screens across dozens of developing economies. This approach differed from simply holding all ex-China emerging-market stocks. It was a filtered bet on emerging-market growth, designed to avoid the worst-run companies and the most-overpriced sectors within that universe.

Emerging markets had historically been riskier than developed markets — investors demanded higher expected returns as compensation for currency swings, political uncertainty, and weaker corporate governance. The quality screens aimed to reduce that risk by preferring financially stable, profitable companies less likely to face distress.

Evolution and growth through geopolitical shifts

In the years following AVXC’s launch, the geopolitical and market backdrop shifted in ways that, in hindsight, validated the fund’s positioning. U.S.-China tensions continued to escalate. Regulatory crackdowns on Chinese technology companies raised questions about the opacity and political control of China’s largest firms. Taiwan tensions heightened. Meanwhile, India’s economy accelerated, Southeast Asia continued its steady development, and Latin America remained a source of commodity wealth and manufacturing. AVXC’s exclusion of China, initially a contrarian bet, became increasingly aligned with mainstream concerns.

The fund grew steadily as more advisors and investors incorporated it into emerging-market allocations. Its size and liquidity improved, making it easier and cheaper to trade. The holdings evolved as valuations and profitability metrics shifted — stocks entered and exited the quality and value screens based on fundamental changes in the companies and their sectors.

The portfolio today

AVXC today holds roughly 100 to 200 stocks across multiple emerging economies, with larger weights in India, South Korea, Mexico, Brazil, and Taiwan — markets large enough to be economically significant but diverse enough to reduce concentration risk. The fund’s sector composition reflects where developing economies have competitive advantages: financials (banks and insurers in India and Brazil), semiconductors (South Korea and Taiwan), energy and materials (Brazil, Mexico, India), and domestic consumer companies.

The fund trades with reasonable liquidity on major stock exchanges. Its holdings are denominated in local currencies — rupees, won, pesos, reals — creating natural currency exposure that is typically unhedged. A strong U.S. dollar headwind reduces returns even when underlying stocks rise; a weakening dollar can amplify gains.

Volatility remains higher than in developed-market funds. Emerging-market drawdowns of 30 to 40 percent in a year or two are not rare. AVXC’s quality screens reduce volatility compared to a broader emerging-markets index, but do not eliminate it.

From present application to future outlook

AVXC serves investors with a specific, durable conviction: that emerging-market growth will continue, that China’s regulatory and geopolitical risks justify its exclusion, and that disciplined screening for quality and value improves outcomes in volatile, less-efficient markets. The fund requires patience — a holding period of at least five to ten years to smooth volatility and allow the underlying growth thesis to compound. Shorter periods risk buying high in booms and selling low in busts.

The ex-China positioning, once niche, is now mainstream. But it remains a deliberate bet, not an accident. Investors holding AVXC are choosing India, Southeast Asia, and Latin America over the world’s largest emerging market. That choice carries both opportunity and cost.

How to research AVXC

Start with the fund’s prospectus and fact sheet, which detail the screening methodology, current holdings, and expense ratio. Understand the China exclusion: is it Avantis’s strategic choice, or an artifact of the underlying index? Compare AVXC’s long-term performance to a total emerging-markets index (including China) across multiple market regimes — bull markets, corrections, sideways periods — to see whether the exclusion and factor screens have added value or subtracted it. Look at the top holdings to see the specific companies and countries represented. And consider your own views on China risk, emerging-market growth potential, and the volatility you can tolerate.