Financial innovation is a double-edged sword—investors today have more financial product options than ever, but this abundance of choice can be overwhelming. In the US alone, there are now about 4,500 exchange-traded funds—more than the number of underlying US stocks. An evidence‑based approach offers a systematic way to sort through this ever‑expanding menu, as only a small percentage are backed by rigorous empirical research. Of these, most are simply a repackaging of four underlying factors: value, small‑cap, profitability, and momentum.
The industry has converged around these factors because academic and practitioner research has shown that they are:
- Persistent across time and economic regimes
- Pervasive across sectors, countries, regions, and even asset classes
- Robust to various definitions
- Economically sensible
- Implementable after transaction costs
Among the most successful factor‑focused firms are Dimensional and Avantis, both widely respected for their commitment to research and investor education. While they manage dozens of strategies, they are best known for their flagship value ETFs in both large and small caps:
US equities: Dimensional US Marketwide Value ETF DFUV, Dimensional US Small Cap Value ETF DFSV, Avantis US Large Cap Value ETF AVLV, and Avantis US Small Cap Value ETF AVUV.
International equities: Dimensional International Value ETF DFIV, Dimensional International Small Cap Value ETF DISV, Avantis International Large Cap Value ETF AVIV, and Avantis International Small Cap Value ETF AVDV.
One underappreciated way to improve a value-tilted portfolio is to pair traditional value strategies, such as these, with an “intangible value” strategy that owns very different kinds of companies. For investors already using Dimensional or Avantis value strategies, there’s a new entrant that provides a way to do this, helping diversify both their value and sector risks.
The Intangible Value Factor
This newer entrant into the conversation is Sparkline Capital. Like Dimensional and Avantis, Sparkline is research-driven, rules-based, and value-oriented. Over the past several years, I have been consistently impressed with the quality of Sparkline’s research and have highlighted several of its papers on topics such as brand value, corporate culture, artificial intelligence capital expenditure, and Warren Buffett.
Despite their common belief in the value factor, Sparkline diverges from its more established peers in its view that traditional value metrics are increasingly obsolete. Traditional metrics such as the price/book ratio fail to adequately capture the value of intangible assets—intellectual property, brand equity, human capital, and network effects. This shortcoming gives the value factor a systematic bias against intangible‑intensive firms.
Given the economy’s shift from industrial to asset‑light companies, Sparkline warns that this bias is increasingly problematic. By some estimates, intangible assets now comprise over half of corporate value and nearly all of the value of the largest, most profitable firms (for example, the Magnificent Seven (Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla)). Many of these firms score poorly on traditional value metrics despite dominating profit pools, illustrating how classic value screens can systematically underweight the modern economy. For example, software firms with large R&D budgets and extensive customer networks can look expensive on price/book despite having strong competitive advantages. Sparkline argues that the value factor’s implicit bet against the growing intangible economy helps explain its struggles over the past decade and creates structural headwinds moving forward.
The Solution
Sparkline’s solution is to assess stock prices against a more holistic measure of intrinsic value that includes not only tangible but also intangible assets, which it calls the intangible value factor. Sparkline’s measure goes beyond accounting statements, drawing on alternative data such as patents, trademarks, and employee LinkedIn profiles. Notably, Sparkline was an early adopter of large language models, using them to convert this text‑based data into structured intangible value metrics.
Sparkline manages two ETFs that provide exposure to large- and mid-cap firms scoring high on the intangible value factor:
Value in the New Economy
While Sparkline, Dimensional, and Avantis all manage value funds, in practice, they tend to invest in very different types of companies.
Due to their focus on intangible assets, the Sparkline funds favor companies in more “modern” sectors such as information technology, communication services, and consumer discretionary. In contrast, Dimensional US Marketwide Value ETF and Dimensional International Value ETF are concentrated in financials, energy, and materials—asset‑heavy industries favored by traditional value investors.
It follows that they own almost completely nonoverlapping sets of companies, with portfolio overlap of less than 14%. This has important implications for diversification.
These differences show up in return correlations as well. On a daily basis, the Sparkline funds move broadly with Dimensional and Avantis value funds, with headline correlations around 85%. However, once you strip out the common market exposure, the correlation of their excess returns drops to a much more modest 23%.
Repeating this analysis using the other Avantis or Dimensional ETFs mentioned earlier produces similar conclusions.
Performance
As evidence‑based investors, we know better than to lean too heavily on short sample periods. That said, it is worth examining the historical returns of these funds for further evidence of low correlation.
Here, we focus on Sparkline Intangible Value ETF, the longer‑running of Sparkline’s ETFs. (Sparkline International Intangible Value ETF has only been around for a bit over a year.)
Sparkline Intangible Value ETF has outperformed in each of the past three years, delivering an annualized three‑year return of 24.0% through Dec. 31, 2025, compared with 13.6% for Dimensional US Marketwide Value ETF, 11.5% for Dimensional US Small Cap Value ETF, 16.7% for Avantis US Large Cap Value ETF, and 13.0% for Avantis US Small Cap Value ETF. These are large differences in excess return per year. However, it is also worth examining the calendar‑year returns, which reveal that Sparkline Intangible Value ETF significantly underperformed in 2022. This supports the earlier observation that the value and intangible value factors invest in different types of firms, with Sparkline Intangible Value ETF’s focus on asset‑light businesses beneficial in general but costly in the 2022 tech‑led selloff. For portfolio construction, this suggests Sparkline Intangible Value ETF may shine in growth‑led markets but lag sharply in value‑led, rate‑shock periods—which is exactly the pattern diversifiers should exhibit.
Diversifying Beyond Traditional Value
The bottom line is that Sparkline, Dimensional, and Avantis offer exposure to value stocks as defined by extensive empirical research. Despite this alignment, they focus on very different types of companies—Dimensional and Avantis are concentrated in traditional old‑economy stocks, while Sparkline is focused on modern new‑economy firms. Historically, this has led to low correlation and outperformance in distinct periods: Sparkline Intangible Value ETF from 2023 to 2025 and Dimensional US Marketwide Value ETF and Avantis US Small Cap Value ETF in 2022.
One reasonable way to view Sparkline’s ETFs is not as a full replacement for Dimensional and Avantis funds, but rather as a way to diversify beyond concentrated Dimensional and Avantis allocations. For example, an investor with 20% of equities in a Dimensional or Avantis value fund might consider shifting five to 10 percentage points into Sparkline Intangible Value ETF or Sparkline International Intangible Value ETF to introduce intangible value without abandoning traditional value screens.
Finally, investors should note that Sparkline’s funds have modestly higher expense ratios—0.5% for Sparkline Intangible Value ETF and 0.55% for Sparkline International Intangible Value ETF—versus Dimensional US Marketwide Value ETF’s and Dimensional International Small Cap Value ETF’s 0.21% and 0.42%, respectively, and Avantis International Large Cap Value ETF’s and Avantis International Small Cap Value ETF’s 0.25% and 0.36%, respectively. Investors should weigh whether the potential diversification benefits and different sector tilts justify these higher costs.