Brian Armor: The ongoing discussions around customs are adding a layer of uncertainty for businesses and the broader economy. Changes could be on the horizon, potentially impacting your investments significantly.
As market conditions evolve, it’s crucial for investors to enhance the resilience of their portfolios. During these unpredictable times, diversification must be a primary focus. Relying on just one company, sector, currency, or region may not be wise, so exploring various options could be beneficial. Today, we’ll discuss three ETFs that can aid in this diversification.
Three ETFs that Diversify Your Portfolio
- Avantis International Equity ETF (Avde)
- Vanguard Short-Term Inflation Protection Securities ETF (VTIP)
- Schwab Fundamental US Large Company ETF (FNDX)
Let’s start with the Avantis International Equity ETF. Ticker Avde, this ETF presents a broad international portfolio with a slight factor tilt—all while keeping costs low. It includes exposure to developed market stocks across various sizes and is strategically inclined towards companies that are cheaper yet profitable. The market capitalization of the stocks still influences the overall portfolio weight, ensuring minimized performance drag due to sales and related costs. Essentially, this ETF provides dual benefits of diversification.
First, investing in international stocks helps balance out a portfolio that may be heavily weighted towards the US. Secondly, it’s among the most diversified international equity funds available, boasting more than 3,000 holdings, with less than 7% of assets tied up in the top ten stocks.
Regarding performance, AvDE tends to follow similar patterns to its peers in large foreign blend categories and generally shows improvement. Over the past five years, it has offered annual returns exceeding 13%. It looks set to remain a strong choice for international investing.
Next up is the Vanguard Short-Term Inflation Protection Securities ETF, or VTIP. Addressing rising costs is a complex challenge for investors. As we witnessed in 2022, inflation can negatively affect both bonds and stocks simultaneously. This ETF provides prime Treasury exposure, ensuring growth of principal tied to inflation. While long-term TIP funds may not fully hedge against inflation, VTIP’s short-term focus helps mitigate risks stemming from rising interest rates, which typically affect fund performance.
VTIP stands out in the short-term inflation protection bond category due to its pragmatic portfolio design and very low fees. Historical performance supports this, showing it has consistently landed near the top of returns in its category over the past decade.
Now, VTIP might not take home any aesthetic awards, but its blend of stocks and inflation protection makes it a solid option for many portfolios.
Lastly, let’s look at the Schwab Fundamental US Large Company ETF (FNDX). This ETF returns to foundational metrics by selecting companies based on their fundamental footprint rather than market cap. This approach positions the fund favorably, especially when stocks are undervalued or bounce back after being overlooked.
Within this ETF, you’ll find over 700 holdings, which efficiently mitigates the risk tied to any single company. Although the weighting scheme leads this fund toward the large-value segment of the Morningstar Style box, it still includes growth-oriented companies appropriately weighted based on sales, cash flow, and shareholder yield. For instance, Apple remains a significant player here, alongside high-growth firms like Nvidia, which has a minimal allocation compared to its growth rankings.
The resulting mix is more diverse than typical market cap-weighted indices that have become increasingly concentrated. With its comprehensive range, favorable pricing, and solid fundamentals, this ETF has achieved impressive returns, outperforming its category by about 5% over the last decade, and it’s expected to maintain that momentum.
We hope these ETF suggestions can help you manage risks in your portfolio more effectively. For more insights, check out ETF discussions at MorningStar.com/topics/Etfs. Stay curious and keep building your interest. Until next time!
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