ETF Flows and Investment Strategies: A Week of Market Trends

ETF Market Overview

• 📈 Year-to-date net ETF inflows have surpassed $645 billion, indicating strong investor participation.
• 💡 While passive ETFs still dominate the market share (around 90%), active ETFs are gaining ground, accounting for approximately 25% of June's flows.
• 🌍 Investors are increasingly looking abroad, with international equities outperforming US equities in the last month, reversing a trend from the past 12 months.

Key Market Trends and Opportunities

• 📊 Trade news and big tech earnings are influencing market sentiment, with optimism surrounding potential trade deals.
• 💰 The US dollar has been a tailwind for non-US investments, contributing to their performance.
• 📉 A significant disparity exists between large-cap and small-cap returns in the US, with small caps underperforming. However, outside the US, small caps have performed well in both developed and emerging markets.

Recommended ETF Strategies

• 💡 Two recommended ETFs for international developed small-cap strategies are ABDV and ABDS, managed by Avantis Investors.
• 🎯 The international small-cap value strategy (ABDV) has exceeded $10 billion in assets under management and has shown strong performance relative to its category and benchmarks.
• 🧩 These strategies offer broader exposure to developed economies and smaller companies, which can be an overlooked but valuable allocation for portfolios.

Rationale for Small-Cap Investing

• 🧩 Focusing on diversification is key, and small-cap stocks offer a broader range of companies that may be overlooked by large-cap strategies or indexes.
• 🚀 Historically, small-cap companies with good valuations and profitability have been strong long-term performers across US, non-US developed, and emerging markets.
• 📈 Attractive valuations in small caps can lead to significant returns, as demonstrated by the outperformance of the ABDV strategy against large-cap and general small-cap indexes in international developed markets over the past five years.