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While investors obsessed over the S&P 500 and Bitcoin (NASDAQ:BTC) in 2025, a quiet fund with just $11 billion in assets delivered a 39% return that left both in the dust. The Avantis International Equity ETF (NYSEARCA:AVDE) proved one of the year’s most unexpected winners.
Bitcoin started 2025 at $96,525 and currently sits at $87,291, down nearly 10%. The S&P 500 gained 18%. AVDE’s 39% surge represented a fundamental shift in how international markets performed relative to U.S. equities. Even the standard international benchmark iShares MSCI EAFE ETF (NYSEARCA:EFA) gained 32%, meaning AVDE’s active approach added roughly 7 percentage points of alpha over passive international exposure.
The Perfect Storm: What Drove International Markets
European economic stabilization combined with higher interest rates created a goldmine for financial stocks. AVDE’s portfolio is loaded with European banks like HSBC, UBS, Barclays, and Deutsche Bank – institutions that benefited enormously as the European Central Bank maintained elevated rates longer than expected. The STOXX Europe 600 Banks Index surged 65% this year, and AVDE captured that move.
Defense spending provided another tailwind. With geopolitical tensions elevated, European defense contractors like Rheinmetall, Safran, and Rolls-Royce saw massive order backlogs. The European defense sector climbed nearly 60% in 2025, and AVDE held meaningful positions in these names.
Currency movements mattered too. As the dollar weakened against the euro and pound through much of 2025, U.S. investors holding international stocks enjoyed translation gains – strong local currency returns amplified by favorable exchange rates.
What Makes AVDE Different
AVDE isn’t passive. It applies factor tilts toward value, profitability, and smaller companies within developed international markets. That means it naturally overweights financials and industrials while underweighting mega-cap tech. That positioning worked perfectly in 2025. The fund’s largest holding is cash at 1.19%, with no single stock exceeding 1%. This extreme diversification across more than 1,000 positions gives it exposure to trends without concentration risk.
The expense ratio of 0.23% is remarkably low for active management. Portfolio turnover runs just 3%, making it tax-efficient. The dividend yield of 2.37% provides income while you wait for capital appreciation.
Looking Ahead: Currency Risk and Valuation Gaps
The biggest macro factor to watch in 2026 is the dollar. If the Federal Reserve cuts rates more aggressively than European central banks, continued dollar weakness could extend international equity outperformance. Monitor the DXY dollar index and ECB policy statements – any divergence in monetary policy will flow directly through to AVDE’s returns.
Watch AVDE’s monthly fact sheets for sector drift. If management starts rotating out of financials or defense into other sectors, that signals changing views on where value lies. The fund rebalances based on profitability and valuation metrics, so holdings shifts reveal their assessment of relative opportunities.
For investors seeking similar exposure with different characteristics, consider the iShares MSCI EAFE Value ETF (NYSEARCA:EFV). It offers a purer value tilt at a slightly lower 0.30% expense ratio and $7.6 billion in assets. While it lacks AVDE’s small-cap exposure and active overlay, it provides a more concentrated bet on international value stocks with better liquidity for larger positions.
The single most important factor for AVDE in 2026 will be whether European economic growth can sustain elevated bank profitability, while the key micro signal is whether the fund maintains its financial sector overweight or begins rotating toward other opportunities.