Interested in International Equities? Look to Small Caps for an Edge

2026 has seen international equities perform at a healthy clip, building on a strong year in 2025. Ex-U.S. equities continue to offer some of the year’s strongest opportunities, diversifying from U.S. uncertainty while also offering exposure to cheaper equities abroad. Finding the right allocation therein becomes an important task for investors and advisors alike, with small caps a potential edge to watch.

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Why small caps? Small caps can offer even more potential growth and upside in some cases than larger firms. Especially for investors and advisors looking to compete with domestic tech equities performance, small cap upside has a lot to offer. The right international equities ETF can offer a high efficiency, elevated route into ex-U.S. small caps.

AVDV, the Avantis International Small Cap Value ETF, provides a strong example. The fund charges a 36 basis point (bps) fee to provide a systematic active approach targeting ex-U.S. small caps with a value twist. Specifically, it targets companies across market sectors and industry groups from ex-U.S. developed markets. It looks to firms having a market cap less than that of the largest company in the MSCI World ex USA Small Cap Index.

The small cap value international equities ETF emphasizes highly profitable small cap value firms, applying fundamental research to assess opportunities. The ETF measures expenses, revenue, cash flow, shares outstanding, price-to-book value, and more. 

That has helped the fund outperform its ETF Database Category averages in recent times. AVDV has outperformed the average over all time frames in the database. Over the last year, it has returned 63% over one year, beating the average’s 43.96% return in that time. 

So, while small caps already have some appeal in international equities, a value twist could really help it stand out. Value helps identify small caps that can withstand headwinds or unpredictability abroad. At the same time, it can relieve price pressure facing domestic equities investors. For those looking to get international equities exposure, a small caps flavor could offer a useful edge.

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