Tilting toward Developed Markets Small Cap Value (DM SCV) enhances portfolio diversification and with market-beating factor premia during non-US-dominated cycles. AVDV stands out for its superior factor exposure to value, size, and profitability, with strong liquidity, low fees, and robust assets under management. DM SCV provides differentiated returns and volatility, acting as an 'equity-bond' with unique cycles that complement core US equity exposure.
If 2025's widespread market volatility has taught advisors anything, it's that diversification is extremely important. A well-diversified portfolio can offer a number of significant benefits to advisors, investors, and retail traders alike.
AVDV targets ex-US small-cap stocks with value characteristics, using a quantitative rules-based methodology. Its strategy incorporates size, value, and quality factors, filtering out "value traps" and focusing on profitable companies to enhance returns. Despite short-term risks from tariffs and significant exposure to Japanese equities, AVDV's long-term prospects are strong.
Considering routes to diversification? ETFs can provide easily toggleable tools to add or subtract exposures.
Despite the ETF industry's passive roots, active has stolen the show. Active ETF assets just topped the $1 trillion threshold, making up nearly 10% of the total ETF pie.
I track about a thousand funds using Mutual Fund Observer and have developed a ranking system to group equity funds into four categories based on risk, valuation, and/or yield. Tier One contains the Lipper Categories and funds that have a combination of lower risk, lower valuations, and higher yields. Tier Two contains those with low to moderate valuations and have lower risk.
2025 has offered investors much to think about. Tariffs, concentration risk, high valuations, and more all loom over portfolios.
Bull vs. Bear is a weekly feature where the VettaFi writers' room takes opposite sides for a debate on controversial stocks, strategies, or market ideas — with plenty of discussion of ETF ideas to play either angle. For this edition of Bull vs.
AVDV: Best Choice For International Small Cap Value
AVDV, an actively managed small-cap value ETF has underperformed global stocks by 800bps this year. AVDV may not be as cost-efficient as VSS, the biggest ETF in this space, but it scores well in other areas. AVDV's strong exposure to industrials and Japanese equities is not too ideal now, but its valuations are still compelling and the risk-reward on the charts look fair.
Many investors have parked significant assets in cash over the last year, farming significant yields therein. Of course, with rate cuts having arrived, the cash outlook has changed.
AVDV aims to outperform the MSCI World ex-U.S. Small Cap Index by selecting profitable, undervalued companies within the same universe. The value factor for this fund is more sophisticated than most funds that are supposed to be "value" and the small-cap space as the hunting ground seems promising. The fund has realized a price return of 3.51% per year in the last 3 years, greatly outperforming its benchmark, which reflected negative returns.