Why DISV Outperforms Traditional Small-Cap Value ETFs in International Markets

In the volatile landscape of international small-cap value investing, the Dimensional International Small Cap Value ETF (DISV) has emerged as a standout performer. Despite the sector’s challenges in 2023—including rising interest rates and geopolitical uncertainties—DISV delivered a year-to-date (YTD) return of 33.8% as of 2025, significantly outpacing its peers. This performance, coupled with a disciplined factor-based active management strategy and a cost structure that balances efficiency with quality, positions DISV as a compelling alternative to traditional ETFs like the Vanguard Small-Cap Value ETF (VBR) and the Avantis International Small Cap Value ETF (AVDV).

Factor-Based Active Management: The DISV Edge

DISV’s success stems from its rigorous application of financial science principles. The fund employs a market capitalization-weighted approach to target small-cap value stocks in developed international markets, emphasizing firms with low relative prices and high profitability [5]. This methodology is rooted in Dimensional Fund Advisors’ long-term research, which identifies persistent premiums in factors such as value, profitability, and size [4]. By systematically overweighing these attributes, DISV avoids the pitfalls of passive indexing, which often lags due to its rigid adherence to market-cap weights without accounting for fundamental quality.

For instance, while AVDV—a passive ETF focused on non-U.S. small-cap value stocks—returned 16.9% in 2023 [4], DISV’s active screening process generated a 33.8% YTD return as of 2025 [3]. This gap underscores the power of factor-based active management in capturing premiums that passive strategies miss. Unlike AVDV, which tracks a broad index without tilting toward profitability metrics, DISV’s rules-based approach ensures exposure to companies with stronger fundamentals, even if they are underrepresented in traditional benchmarks.

Cost Efficiency: Balancing Expense and Performance

Critics of active management often cite higher fees as a drawback, but DISV’s 0.42% expense ratio [1] demonstrates that cost efficiency and active strategies are not mutually exclusive. While VBR—a passive ETF with a mere 0.07% expense ratio [5]—posted a 16% return in 2023 [1], its U.S.-focused mandate limits its relevance in international markets. AVDV, with a 0.36% expense ratio [1], offers global exposure but underperformed DISV, returning 16.9% in 2023 [4].

DISV’s fee structure reflects its commitment to balancing cost with quality. By leveraging Dimensional’s scale and low operational overhead, the fund maintains a competitive expense ratio while investing in a diversified portfolio of 1,487 holdings [6]. This breadth reduces concentration risk and ensures broad exposure to the international small-cap value universe, a critical advantage in volatile markets.

Diversification and Risk Management

DISV’s strategy extends beyond factor tilts to include robust diversification. Its holdings span 1,487 small-cap stocks across developed international markets, minimizing the impact of individual stock underperformance [6]. This contrasts with AVDV, which, despite similar factor exposure, lacks DISV’s emphasis on profitability screening and has a narrower portfolio. VBR, meanwhile, is entirely U.S.-centric, leaving investors vulnerable to regional economic shifts.

Moreover, DISV’s active management incorporates dynamic risk-adjusted return optimization. By adjusting portfolio weights based on real-time market signals—such as valuation metrics and political risk factors—the fund mitigates downside exposure during downturns [2]. This adaptability proved crucial in 2023, when global markets faced headwinds from inflation and central bank tightening.

Conclusion: A Strategic Case for DISV

For investors seeking international small-cap value exposure, DISV offers a compelling blend of performance, cost efficiency, and risk management. Its factor-based active strategy outperforms both passive and higher-cost alternatives, while its diversified holdings and profitability-focused screening provide resilience in uncertain markets. While VBR and AVDV remain viable options, DISV’s ability to consistently capture value and profitability premiums—backed by a 3-year annualized return of 21.7% [3]—makes it a superior choice for those prioritizing long-term growth over short-term cost savings.

In an era where passive strategies struggle to justify their value, DISV exemplifies how disciplined active management can deliver alpha without sacrificing cost efficiency.

Source:
[1] Dimensional International Sm Cp Val ETF DISV, [https://www.morningstar.com/etfs/bats/disv/quote]
[2] A factor model for the cross-section of country equity risk, [https://www.sciencedirect.com/science/article/pii/S0378426624002875]
[3] DISV - Profile, [https://www.dividend.com/etfs/disv-dimensional-international-small-cap-value-etf/]
[4] Perspective on Premiums, [https://www.dimensional.com/ie-en/insights/perspective-on-premiums]
[5] Vanguard Small-Cap Value Index Fund ETF (VBR) Performance History, [https://www.financecharts.com/etfs/VBR/performance]
[6] Dimensional International Small Cap ETF, [https://www.aaii.com/etf/ticker/DFIS]