Core Insights - Investors are increasingly interested in foreign equities, with foreign equities ETFs showing strong performance in 2025 and expectations for continued success in 2026 [1] Performance of Specific Funds - The Avantis International Small Cap Value ETF (AVDV) has excelled in the foreign small- and midcap equities category, outperforming all but one ETF in the last year while charging less than half the fees of the top fund [2] - AVDV achieved a return of 62.3% over the past year, significantly surpassing the category average return of 43.8% [3] Competitive Advantage - AVDV's focus on small-cap value investments distinguishes it from other funds, as evidenced by its performance compared to the iShares MSCI EAFE ETF (EFA), which returned only 33.1% in the same period [4] - The fund's strategy emphasizes a systematic active approach, allowing managers to select firms based on fundamental criteria such as shares outstanding, revenue, cash flow, and price-to-book value, rather than merely tracking an index [5] Future Outlook - AVDV's targeted investment strategy is expected to continue yielding positive results in 2026, particularly in the context of geopolitical and global financial market uncertainties [6]

Core Viewpoint - The resurgence of small-cap stocks and related ETFs, particularly those with value stock exposure, is a significant theme in early 2026, with small-cap stocks outperforming the large-cap S&P 500 year-to-date [1]. Group 1: Small-Cap Stocks and ETFs - The O'Shares U.S. Small-Cap Quality Dividend ETF (OUSM), valued at $932.82 million, has increased by 3.3% year-to-date, indicating strong performance among small-cap ETFs [1]. - OUSM is appealing for equity income investors seeking small-cap exposure, as traditional ETFs in this category often have low yields and limited potential for dividend growth [2]. - Small-value portfolios focus on small US companies with lower valuations and growth rates compared to their peers, defined as stocks in the bottom 10% of the US equity market capitalization [3]. Group 2: Market Sentiment and Economic Factors - There is a growing sentiment among professional investors that market breadth is widening, leading to increased interest in smaller stocks as potential winners outside the mega-cap growth sector [5]. - Factors supporting small-cap performance include expectations of continued interest rate cuts by the Federal Reserve and a potentially stronger-than-expected U.S. economic expansion [6]. - Geopolitical events, such as the ousting of Venezuelan President Nicolás Maduro and investigations involving Federal Reserve Chair Jerome Powell, are expected to stimulate broader market investment in 2026 [7].

Core Viewpoint - Small-cap value has historically been a strong investment strategy, but recent trends show that riskier small stocks have outperformed small-cap value indexes over the past three years, with the Russell 2000 Index exceeding its value counterpart by over 800 basis points. However, experts predict a potential resurgence for small-cap value by 2026, which could benefit ETFs like the WisdomTree U.S. SmallCap Dividend Fund (DES) [2][3]. Group 1: Small-Cap Value Performance - The Russell 2000 Index has outperformed its value counterpart by more than 800 basis points over the last three years [2]. - Despite recent underperformance, there is optimism for a small-cap value rebound in 2026 [2]. - DES has generated decent returns over the past three years and is positioned to participate in a potential small-cap value recovery [3][4]. Group 2: DES ETF Characteristics - DES, with a market capitalization of $1.86 billion, is not a typical cap-weighted fund; it follows a dividend-weighted index, indicating quality and value traits [4]. - The focus on high-quality, profitable businesses is emphasized as a long-term investment strategy, with metrics like net margins and return on assets being crucial indicators of portfolio quality [5]. - More than a third of Russell 2000 member firms are estimated to be unprofitable, highlighting the potential advantage of investing in DES, which includes firms with better profitability profiles [5][6]. Group 3: Market Sentiment and Valuations - Many financially weak small-caps have seen their valuations rise this year, reflecting a speculative mentality among investors [6]. - The price/sales ratio of profitless stocks has surged from mid-single digits to nearly 20, indicating that investors are paying higher prices based on future earnings potential rather than current profits [7].