by Editorial Team, AdvisorAnalyst
For years, Canadian investors have been stuck with a binary choice: pay over 1% in fees to underperforming active managers, or settle for cap-weighted index funds that capture only part of what financial economics has learned over the past three decades. That gap just narrowed considerably.
Ben Felix, Chief Investment Officer at PWL Capital and one of Canada's most respected evidence-based voices in personal finance, breaks down the significance of the CIBC Avantis ETF launch — a suite of Canadian-listed, factor-tilted funds that Felix describes as categorically different from the "ETF slop" he has warned investors about. "These ETFs are not slop," Felix says directly. "And I'm going to tell you why."
The Problem With the Status Quo
Felix opens with a structural critique of how most Canadians still invest. More than 80% of the Canadian fund market, by year-end 2024 data, remains in actively managed products. The verdict on active management is not ambiguous. "Active management is, broadly speaking, a losing game," Felix says. "Active managers rarely outperform the market, especially over longer time horizons." The result: the vast majority of Canadian investors are paying well over 1% annually — mostly to the big five banks — and likely underperforming the market for the privilege.
The natural upgrade is low-cost cap-weighted index funds, and Felix endorses them unreservedly over active management. But his argument goes further. Index funds, while a dramatic improvement, are not the end state of portfolio construction. "Market cap weighted index funds are not perfect," he says. "They offer exposure to a single expected return premium, the market premium, but they ignore other well established return premiums that can be pursued systematically and at a low cost."
The Factor Framework
The theoretical backbone Felix deploys is the Fama-French valuation equation from their landmark 1993 and 2015 papers. Using the dividend discount model extended by Miller and Modigliani's dividend irrelevance theorem, Felix walks through three structural implications that define which stocks should have higher expected returns.
First, the value premium: a company with a lower price relative to book value must carry a higher discount rate — and therefore higher expected returns — all else equal.
Second, the profitability premium: if two companies trade at the same price, the one with higher earnings must have a higher discount rate.
Third, the investment premium: companies with lower expected asset growth carry higher expected returns, since aggressive reinvestment implies a lower required discount rate.
Felix is careful to flag that these factors cannot be evaluated in isolation. "A portfolio that focuses on profitability without controlling for relative price is likely to result in a portfolio of high priced growth stocks — think overpaying for growth," he says. "And a portfolio that focuses on value without controlling for profitability is likely to result in a portfolio of stocks with weak profitability — think cheap for a reason." The highest expected returns go to stocks that are simultaneously cheap and profitable. That joint targeting is exactly what Avantis implements.
Why the CIBC Launch Matters
Dimensional Fund Advisors has operated in this space since 1981, but their Canadian access is largely limited. Avantis — launched in 2019 by former Dimensional executives including former co-CEO and CIO Eduardo Repetto — operates inside American Century Investments, which manages over $300 billion. "Avantis is cut from the same cloth as Dimensional and is backed by a long standing and a large asset manager," Felix says. "They're not going to disappear."
The CIBC distribution partnership solves three structural problems for Canadian investors simultaneously: no currency conversion required, no double withholding tax on foreign stocks in TFSAs, RRSPs or taxable accounts, and a carve-out of Canadian equities from the international funds — a detail that matters for home country allocation construction.
The flagship product is CAGE, the Avantis CIBC All Equity Asset Allocation ETF — a single-ticker, globally diversified, factor-tilted portfolio. "This is a one stop shop for a low cost, broadly diversified portfolio that takes full advantage of the last 30 years of financial economics research," Felix says, "all in a single ticker, just like VEQT and XEQT."
The IPO Dimension
Felix adds a timely warning for index fund holders. Cap-weighted index funds are mechanically obligated to buy shares of newly listed companies when they enter an index — "very likely at high prices." With SpaceX, OpenAI, and Anthropic reportedly preparing for public offerings, the implicit cost of that mechanical buying could be material. Avantis, by contrast, only includes newly listed companies when sufficient financial data exists and the shares trade at an attractive price relative to their fundamentals. "They are well aware of the issues around index inclusion," Felix notes, "and they're careful not to get caught up in the mechanical price increases following index inclusion."
What Advisors Need to Hear
Felix closes with honest behavioural caveats. Factor tilts have underperformed — sometimes painfully, sometimes for years — and the US market's recent mega-cap dominance is a live example. "If you're worried about short term underperformance and even the possibility of long term underperformance, this approach may not be for you." The right fit depends on investor psychology, account types, tax situation, and time horizon. It's a portfolio management question, not just a product selection.
For advisors already building evidence-based portfolios, the arrival of single-ticker, Canadian-listed, factor-aware ETFs is a meaningful development. The execution complexity that once kept this approach out of retail hands has largely been removed.
5 Key Takeaways for Advisors and Investors
1. Factor premiums are theoretically grounded, not data-mined. The value, profitability, and investment premiums derive directly from equity valuation theory — the same framework that explains why stocks outperform bonds. Advisors should be prepared to explain the why, not just the what.
2. Value and profitability must be targeted jointly. Cheap stocks without profitability controls are cheap for a reason. Profitable stocks without valuation controls become overpriced growth bets. The interaction between these factors is where expected return improvement is most reliable.
3. The CIBC Avantis launch removes the structural barriers that kept this strategy out of retail Canadian portfolios. No currency conversion, no withholding tax complications, and a single-ticker all-equity option make implementation significantly simpler than anything previously available to Canadian investors.
4. Cap-weighted index funds carry an embedded IPO cost that factor funds avoid. With major private companies preparing to go public at likely elevated valuations, the mechanical index-inclusion buying process represents a real and underappreciated drag — one that Avantis is designed to sidestep.
5. Behavioural fit matters as much as expected return math. Long periods of tracking error relative to cap-weighted benchmarks are not a bug in factor investing — they are an inherent feature. Advisors should pre-qualify clients on tolerance for interim underperformance before recommending a factor-tilted strategy, regardless of its long-run theoretical merits.
For Reference: The CIBC Avantis ETF lineup includes:
CACE: Canadian Equity ETF (0.19% management fee) – Moderate tilts across the total Canadian market.
CALV: US Large Cap Value ETF (0.25% management fee) – Focuses on larger US value companies.
CAUS: US All Cap Equity ETF (0.19% management fee) – US total market with mild factor tilts.
CAUV: US Small Cap Value ETF (0.35% management fee) – Heavy tilts toward the smallest, cheapest, most profitable US companies (high expected return, but high tracking error).
CADE: International Equity ETF (0.29% management fee) – Developed markets excluding Canada and the US.
CASV: Global Small Cap Value ETF (0.39% management fee) – Globally diversified small-cap value exposure.
CAEM: Emerging Markets ETF (0.39% management fee) – Factor-tilted exposure to emerging markets.
CAGE: All-Equity Asset Allocation ETF – A "one-stop shop" fund-of-funds (similar to Vanguard's VEQT or iShares' XEQT) that packages all these tilted ETFs into a single ticker.
Footnote:
1 Ben Felix. "Canada's New Evidence-Based ETFs." YouTube, 26 Apr. 2026, https://www.youtube.com/watch?v=Yts3o2EDO-Y.
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