What does Avantis Global Small Cap value Ucits ETFs 23% Cash Flow yield yield?

I didn’t have a good week at work. When I struggle with work and nobody has to trust, there are usually some random thoughts. Sometimes they just keep repeating and repeating. This is when I realize that I have to sit down and spend some time to process.

The point is how comparable the illustration of John Huber is with Avantis Global Small Cap value Ucits ETF (AVGS).

John Huber’s Post On Silent Compounders Try to attract our attention that you do not always need a company that deserves a high Roic or Roe. The kind of high profitable companies that can worsen wealth in the long term. If you find one (and it’s a real one), you can buy and not search for long. But usually they usually do not exchange cheaply (because the market is quite efficient. If they have sustainability, you would not be the first or only person who knows.)

He shares about the companies … that don’t really grow, but acts with a hugely attractive appreciation:

Consider the following:

• A sustainable, adult company that acts at 5x FCF
• The FCF is stable but will never grow (0% growth forever)
• The P/FCF never moves higher (it always stays at 5x)

The result of this share is that it will return 20% annually.

But the real beauty of this 20% FCF yield setup that I think is undervalued by investors and management teams is this: You don’t have to give what the market thinks about your stock. You manage your destination. The multiple does not have to go higher if the stock is so cheap. The share price will rise by 20% per year if the valuation remains at 5x FCF, the FCF is stable and the FCF is used to buy back shares.

This is very simple math, but I have noticed that many management teams focus too much on how they can get the story “. The cheap stock is no problem, but is in fact a gift horse.

What if the share does not get the attention of the markets?

Charlie Munger teaches us to always reverse, which means that we not only look at what you want, but that you can learn about conviction, or how things have been played when you look at the opposite of what you want.

What most of us want is the value of our shares to appreciate.

But what if the starting point is that the company has no growth?

That would be your fear. Why would you want a stock if it does not appreciate it in the next 20 years?

I asked Chatgpt to help model what Mr Huber presented: if we have a company that acts with 5 times FCF today. Our assessment is that the company is stable to give the FCF yield, but it will never grow (0% FCF growth forever). If the price remains consistent for FCF and the company takes what they earn to buy the shares, what happens?

Uncertainty will ask us whether a company can have stable FCF for 10 years, but if our assessment gives us a quiet confidence that it is possible, what happens if the shares are so much yield and so neglected?

If the company consistently takes 20% FCF return and returns its own shares, the free cash flow (FCF) per share grows from $ 0.50 to $ 4.66 or 9 times every 10 years.

In which FXXK world people in the public markets would not notice that?

Huber can have a few points:

1. The most important difference with regard to asset-based activities is that the value company is profitable.
2. Even without growth, value is value.
3. But only if the company shows a kind of intrinsic value that outweighs the price. The most difficult judge is not the stuff that you can appreciate today (eg characteristics compared to the price they have been traded), but what people find it difficult to assess over time.
4. The price cannot move, but if you keep sorting the cash flow after the cash flow, and you will not make stupid decisions about the allocation, sooner or later an FXXker will notice.

Why not pay the 20% return as a dividend?

Ask yourself where would you get a better yield … a 20% FCF yield?

That allocation is probably the simplest.

Does companies like that exist?

The example of Mr. Huber looks pretty fairy tale until you realize that this is the task of an investor. If it is so easy to know that a company has an FCF return of 20% and can last 10 years, would that act for that price?

It is usually not that easy to find out afterwards.

It is possible that FCF remains relatively the same with low growth.

For some reason, the post of Mr. Huber makes me think about the Avantis Global Small Cap Value ETF strategy.

If you remember from my message, Avantis starts their process by asking what would help us find shares with a higher expected return in the future:

And the research triangulate to smaller companies that are higher in operational cash flow (less interest) that do not act too expensive.

This virtue eliminates an important disadvantage: companies that may be more Value falling with low profitability.

It brings us at least closer to companies with FCF but questionable growth. But is the FCF attractive enough?

Morningstar gives us a snapshot of the aggregated appreciation and growth metals of the 1347 shares that form the fund:

Category -average is Global Small/Mid Cap Equity and Index is the MSCI World Small value NR USD.

The portfolio is cheaper on value, lower in price-to-book, price-to-sales, price-to-cash flow and has a higher profit yield.

In particular, the price/cash flow is intrigued at 4.3 times. This is the operational cash flow that is estimated from each shares and then aggregated together. This is not a free cash flow, which derives the net cash from the activities that the capital expenditures make.

But I feel it is good enough.

In their assessment of profitability, Avantis uses business results less than the interest charges, divided by book value.

To allow you to enlarge this 4.3 times, the IWDA (MSCI World) has a price to cash flow from 13 times.

4.3 times translates into one Cash flow -yield of 23%. Now I know for sure that FCF yield is much lower.

I get the argument that the growth rate of these 1347 shares is less than the other.

But what if we reverse and assume that we buy these 1347 shares and They do not rise in price as a collective.

What happens with the 23% that the cash flow yields?

Okay, even if that is crazy, remember that the aggregated profit yield is almost 9.3%.

As a total of these companies are not your actively attractive cheap, not income/cash flow companies, but with cash flow.

Would the cash flow just disappear? Must go somewhere, right?

If you speak with my friend Ser Jing, he is less on the share price of these interests as his eye, but how much gross profit generates all shares in his compounder fund.

And this is where you are wondering whether you have 10 shares, and their total profit yield is 9.3% or aggregated cash flow return is somewhat close by, diversified in not just one industry, a few regions, how delivered do you have to be when the prices get away for a few years?

What John Huber, Tobias Carlisle, would like to tell us is that value can’t work The next 10 years, but that is not the only return we get, and the more concrete return is the total cash flow we earn by waiting in the fund.

They have to accumulate.

If you are a dividend investor who has received 8 years of 5% dividends, you must get it a bit. You also have to get a bit that markets are quite efficient that the market will ultimately realize it.

The more cash the bigger the value gap collected and the more absurd it becomes.

I think this is my interpretation of the concept and as a collective, the management of the 1347 shares will not make the better decision of the capital allocation of one good business management team.

The returns are more weakened for an index.

But you must also be aware: that the FCF of one company may not be that firm for 10 years.

And this is the advantage of the collective cash flow of 1347 companies with 23% (although that is the operation of the cash flow).

Maybe tomorrow we will talk about small American banks.

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Kyith is the owner and some writer behind investment canals. Readers coordinate investment canals to learn and build stronger, stronger power foundations, how to have a passive investment strategy, to know more about investing in Reit’s and the notes and bolts of active investing.

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From 2004 to 2019, Kyith worked as an IT operational engineer. He is currently working as a senior solutions specialist in insurance. All opinions about investment canals belong to him and do not represent the views on providing.

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