Why AVDE Outperformed the S&P 500 and Bitcoin in 2025

In 2025, the Avantis International Equity ETF (AVDE) delivered a staggering 36.13% year-to-date return, outpacing both the S&P 500 and Bitcoin, which posted negative annual returns of -13.06% and -6.38%, respectively according to market data. This remarkable performance wasn't a fluke-it was the result of a masterclass in active factor-based investing, strategic exposure to undervalued sectors, and a tailwind of macroeconomic forces. Let's break down how AVDE leveraged international small-cap value exposure and macroeconomic tailwinds to dominate the market.

The Power of Active Factor-Based Investing

AVDE's secret sauce lies in its disciplined factor-based strategy, which tilts toward value, profitability, and smaller companies. Unlike passive benchmarks, AVDE actively screens for firms with low valuations and strong fundamentals, a recipe that thrived in 2025 as global markets rewarded undervalued opportunities. The fund's portfolio of over 1,000 positions, with no single stock exceeding 1% weight, ensures diversification while maintaining a sharp focus on value-driven growth according to analysis. This approach stood in stark contrast to the S&P 500's concentration in high-momentum tech stocks, which faced valuation headwinds and volatility in 2025 as research shows.

European Financials and Defense: The Twin Engines of Growth

AVDE's outperformance was turbocharged by its exposure to two sectors that roared in 2025: European financials and defense. The STOXX Europe 600 Banks Index surged 65% as elevated interest rates and economic stabilization boosted profitability for institutions like HSBC, UBS, and Deutsche Bank according to financial reports. Meanwhile, the EUR 800 billion ReArm Europe initiative, launched in 2024, fueled a defense sector boom. AVDE's holdings in companies like Rheinmetall-whose shares skyrocketed from $100 to $1,500-were pivotal, reflecting a broader shift toward global security spending as data indicates. These sectors, historically undervalued, became AVDE's crown jewels as AVDE's active strategy capitalized on their turnaround.

Macroeconomic Tailwinds: Dollar Weakness and Rate Dynamics

The U.S. dollar's decline in 2025 was a hidden catalyst for AVDE's success. As the euro and pound appreciated against the dollar, U.S. investors saw their returns amplified through favorable currency translation effects according to market analysis. This dynamic turned AVDE's international exposure into a competitive advantage, contrasting sharply with Bitcoin's struggles against a volatile macroeconomic backdrop.

Interest rate trends also played a critical role. While the European Central Bank cut rates to 2% in June 2025, European banks maintained strong profitability, a testament to their resilience in a shifting rate environment according to industry reports. AVDE's focus on financials allowed it to ride this wave, whereas Bitcoin-despite its long-term allure-remained a high-risk asset with no intrinsic earnings to anchor its value as noted by analysts.

Contrasting Risks: Bitcoin's Volatility and S&P 500 Momentum

Bitcoin's 2025 performance was a cautionary tale. While it closed at $90,358.92 by year-end, its -13% annual return highlighted its inherent volatility, including sharp drawdowns like the 80% crash in 2018 as market data shows. For investors seeking stability, AVDE's diversified, earnings-driven approach offered a safer harbor.

The S&P 500, meanwhile, faced its own challenges. Momentum ETFs like SPMO surged 30% in the first half of 2025, but their gains came with stretched valuations and overreliance on U.S. tech stocks as research indicates. European equities, by contrast, outperformed the S&P 500 by 18.4% in Q1 2025-the largest margin in over 30 years-thanks to fiscal stimulus and undervaluation according to market analysis. AVDE, with its focus on international momentum and value, positioned itself at the intersection of these trends.

Conclusion: A Blueprint for Future Success

AVDE's 2025 triumph underscores the power of active, factor-driven investing in international markets. By targeting undervalued sectors like European financials and defense, leveraging dollar weakness, and maintaining a disciplined approach to small-cap value, AVDE not only outperformed the S&P 500 and Bitcoin but also demonstrated a sustainable strategy for navigating macroeconomic uncertainty. As global markets evolve, AVDE's playbook offers a compelling roadmap for investors seeking both growth and resilience.