The Case for Adding International Small-Caps

If 2025 has had one big story in equities ETF trends, it may be the strong performance of international equities and foreign firms. Many investors entered 2025 underweight to ex-U.S. stocks, but tariff concerns and attractive valuations have seen foreign equities ETFs pick up significant interest and perform for their investors. While many such funds have dropped off a bit in the second half, one category with continued upside may be international small-caps. A value view, for example, could offer strong performance even into 2026.

See more: The Underrated Growth ETF Signaling a Buy to End 2025

Why focus on the international small-caps space, specifically? International small-caps are cheap relative to other international equities. Especially as many investors have already plowed into broader ex-U.S. equities firms, small-caps can continue to provide a lower cost entry. 

International Small-Caps in 2025

What’s more, the interest rate picture abroad could also help ex-U.S. small-caps. U.S. rates are dropping, yes, but other issues, like potential stagflation and unpredictable tariffs, loom. Small-caps often borrow significantly as part of their growth plans, which privileges rate environments with cheaper debt costs. Small-caps in markets like Japan’s, then, can benefit from the nation’s low rates.

Add in a value view in particular, and those attributes can be emphasized yet more. That’s where an international small-caps ETF like the Avantis International Small Cap Value ETF (AVDV) comes in. AVDV offers that value view into the category for a 36 basis point fee. The fund actively invests in the space, with Japan, Canada, and the U.K. as leading markets as of September 30. 

Specifically, its managers look for firms that appeal based on fundamental criteria. That includes metrics like cash flow, price-to-book value, revenue, and expenses. Together, that has helped the fund return a robust 39% YTD, beating its ETF Database Category and FactSet Segment averages in that time. It has also beaten those averages over the last three- and one-month periods, as well.

Together, the fund could present a nice addition to an equities portfolio as U.S. economic uncertainty persists. For those looking to diversify into stocks in good environments and low valuations, AVDV can appeal.

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