Why the Value Foreign Equities Combo Is Hot Right Now

Foreign equities have performed strongly in 2025, with value-oriented ETFs, particularly those focused on ex-U.S. markets, positioned for continued gains through year-end. Despite U.S. value indices trailing growth over three years, their YTD performance is converging, and economic uncertainties may favor value. Actively managed foreign value strategies, such as Avantis' AVIV and AVDV, have returned 28.9% and 32% YTD respectively, outperforming category averages and exhibiting strong technical signals, making them compelling options for investors seeking international exposure.

Analysis

Foreign equities have demonstrated strong performance in 2025, driven by U.S. investors seeking diversification. Within this trend, value-oriented foreign equity ETFs are emerging as a potentially potent strategy for the remainder of the year. While U.S. value, represented by the Russell 1000 Value index (RLV), has significantly underperformed the broader Russell 1000 (RUI) over three years, its year-to-date performance is now within 100 basis points, suggesting a potential shift in factor leadership. This rotation could be amplified by economic uncertainty in U.S. growth sectors, making foreign value an attractive alternative. Specifically, actively managed funds like the Avantis International Large Cap Value ETF (AVIV) and the Avantis International Small Cap Value ETF (AVDV) are highlighted for their success. AVIV and AVDV have posted impressive year-to-date returns of 28.9% and 32% respectively, outperforming their category averages. These strategies, which carry expense ratios of 25 bps and 36 bps, focus on fundamental criteria like cash flow and price-to-book value. Furthermore, both ETFs are exhibiting strong technical momentum, with prices for both AVIV and AVDV trading above their 50- and 200-day simple moving averages, a condition cited as a buy signal.

Key Decisions for Investors

• Investors seeking to enhance international exposure and capture potential year-end outperformance should consider allocating to actively managed foreign value equity ETFs.
• The Avantis ETFs, AVIV and AVDV, warrant specific consideration given their strong year-to-date returns of 28.9% and 32% respectively, coupled with positive technical signals such as trading above key moving averages.
• Monitor the performance spread between U.S. value and growth indices (RLV vs. RUI) as an indicator of the value factor's broader strength, which could support the thesis for foreign value.
• Given the active management approach, investors should be comfortable with the strategy's reliance on manager expertise in identifying undervalued securities in less efficient foreign markets and factor in the stated expense ratios.