Let’s face it — U.S. equities are expensive. Valuations are red hot after strong performances from the tech-heavy Magnificent Seven. Many major indexes rely heavily on just a small handful of those firms, creating significant tech-flavored concentration risk. With that risk looming, amid stubbornly high debt costs and U.S. tariff uncertainty, the time may be now to diversify. ETF diversification, specifically, can potentially play a powerful role in portfolios. As such, these three ways to get ETF diversification abroad could help.
Active ETF Diversification Can Stand Out
How, then, might one approach foreign diversification via ETFs? To start, it may be worth looking to active ETFs. Active investing can lean on managers with significant experience in foreign markets. Where indexes can be limited by their rules, savvy managers can potentially outperform, relying on their skill in markets that can differ from U.S. investing spaces.
The Avantis International Equity ETF (AVDE ) offers one potential option. AVDE charges 23 basis points (bps) to actively invest in non-U.S. developed markets. The strategy emphasizes smaller, high-profitability firms in its approach, assessing metrics like cash flow and price-to-book values. AVDE has returned 10.8% over one year as of January 31, per Avantis Investors data, beating its benchmark in that time.
Emerging Markets Take Stage
In the broader market shift worldwide, emerging markets may be poised to take on a bigger role. Supply chains have shifted since the pandemic, benefiting economies in Southeast Asia, and, for U.S. investors, Mexico. What’s more, a burgeoning and increasingly well-educated middle class in India has boosted that economy’s prospects.
An ETF like the Avantis Emerging Markets Equity ETF (AVEM ) provides exposure to those emerging markets. Asking a 33 bps fee, AVEM actively invests in mostly smaller firms exhibiting strong profits and lower price-to-book values. That has helped the fund return 12.3% over one year, per Avantis Investors data.
Small-Cap Value ETF Diversification to Lead in 2025?
One potent way to take advantage of diversification with ETFs may involve combining key themes. In domestic markets, a small-cap value ETF could be just what the doctor ordered. Taking that on the road into foreign markets via a fund like the Avantis International Small Cap Value ETF (AVDV ) could also reward. AVDV invests in small-cap value firms around the world. Charging 36 bps, it has returned 13.2% over one year, according to Avantis Investors data. That almost doubled the performance of its benchmark.
Together, those three flavors of ETF diversification could boost investor portfolios. With all three funds celebrating their fifth anniversaries this year, they may be worth a closer look.
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