Core Insights - Small-cap stocks and ETFs may not always outperform larger indices but can offer significant hidden investment opportunities [1] Group 1: Avantis International Small Cap Value ETF - The Avantis International Small Cap Value ETF (AVDV) provides excellent diversification, focusing solely on international small-cap value stocks with a 0.36% expense ratio and a 2.84% yield [2] - AVDV consists of over 1,600 stocks, with less than 10% of total assets in its top 10 holdings; seven of these have more than doubled in value over the past year, particularly in the gold and precious metals sectors [3] - The fund has achieved an annualized return of 15.6% over the past five years and has increased by over 60% in the last year, showcasing the potential of small-cap investments [4] Group 2: Dimensional U.S. Small Cap ETF - The Dimensional U.S. Small Cap ETF (DFAS) aims to maximize returns while minimizing federal income taxes, featuring a 0.27% expense ratio, a 0.94% yield, and an annualized return of 11.5% over the past decade [5] - DFAS is diversified across more than 2,000 stocks, with its top 10 holdings constituting only 3% of total assets; nine of these holdings have increased in value over the past year, with six more than doubling [6] - Financial and industrial stocks account for nearly 40% of the fund's assets, with technology, consumer cyclicals, and healthcare also contributing significantly to returns [7] Group 3: Schwab Fundamental U.S. Small Cap Company ETF - The Schwab Fundamental U.S. Small Cap Company ETF (FNDA) includes over 800 small-cap stocks, emphasizing value; seven of its top 10 holdings have risen by over 100% in the past year, although these holdings represent only 5% of total assets [8] - FNDA also focuses heavily on industrial stocks, which make up more than 20% of the portfolio, alongside financials, consumer cyclicals, technology, and real estate, each exceeding 10% of total assets [9] - The fund has generated an annualized return of 11.8% over the past decade, with a 0.25% expense ratio and a 1.15% yield [9]

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Core Viewpoint - The Avantis International Small Cap Value ETF (AVDV) has shown exceptional performance, significantly outperforming major benchmarks and popular investments, raising questions about the sustainability of this rally given its focus on international small-cap stocks and commodity exposure [2][3]. Group 1: Fund Performance and Strategy - AVDV has a portfolio valued at $14.6 billion, with an annual fee of 0.36%, and it primarily invests in obscure international small-cap stocks [2][4]. - The fund's top holdings include gold miners like Perseus Mining and B2Gold, coal producer Whitehaven Coal, and Canadian energy company Whitecap Resources, indicating a heavy concentration in materials and energy sectors [3][4]. - The fund's annual turnover rate is 8%, suggesting a buy-and-hold investment strategy without active rotation away from commodity exposure [4][7]. Group 2: Macro Factors Influencing Performance - The global commodity cycle, particularly in industrial metals and energy, is a critical macro factor that could sustain or reverse AVDV's performance [3][6]. - Rising commodity prices tend to benefit AVDV's small-cap value stocks, while a downturn in these markets could adversely affect the fund more than a diversified large-cap fund [3][6]. - Investors are advised to monitor monthly commodity price indexes from the World Bank and quarterly earnings reports from major mining and energy producers to gauge demand and potential impacts on AVDV's performance [6]. Group 3: Risks and Concentration - AVDV's concentration risk is notable, as its top holdings are clustered in cyclical sectors that are sensitive to economic fluctuations [7]. - The fund's management does not actively rotate out of commodity exposure, which could lead to increased vulnerability if market conditions change [7]. - Continuous dominance of materials and energy in the top positions indicates that AVDV remains a leveraged bet on commodity strength rather than a balanced international value investment [7].