Paul Merriman's 2025 Best-in-Class ETFs Explained

Ten out of eleven. That's how many of Paul Merriman's 2025 equity fund recommendations now point to a single fund family: Avantis. If you've been following Merriman's Best-in-Class ETF series for a while, that number is striking — and it deserves a proper explanation beyond "Avantis is good."

This isn't a paid partnership. It's not groupthink. It's the logical endpoint of a decades-long intellectual journey from Jack Bogle's cap-weighted S&P 500 → Eugene Fama and Kenneth French's factor research → modern factor ETFs built for the retail investor. Avantis happens to be sitting at the best coordinates on that map right now, and Merriman's 2025 update makes that clearer than ever.

Let's break down exactly what changed, why it changed, and what it means for how we think about portfolio construction here at VTI & Chill.

First: Who Is Paul Merriman, and Why Does This Matter?

Paul Merriman is a retired financial advisor turned financial educator who has spent the last decade producing some of the most meticulous, data-driven portfolio research available to retail investors — for free. His Best-in-Class ETF list, maintained and updated by researcher Chris Pedersen, is an annual deep dive into every investable asset class, screening thousands of ETFs to identify the single best option in each category.

The selection criteria aren't arbitrary. Merriman and Pedersen look for:

• Low cost: Expense ratios that don't silently eat returns over decades
• Broad diversification: Enough holdings to eliminate idiosyncratic risk
• Factor consistency: Reliable exposure to the size and value factors that academic research links to higher expected returns
• Factor-predicted expected return: A quantitative estimate of how much better (or worse) a fund should do relative to peers in the same asset class

That last criterion — factor-predicted expected return — is what most of the 2025 changes hinge on. And it's why Avantis keeps winning.

The 2025 Changes: Four Funds, One Clear Direction

The 2025 update made four fund changes and two communication changes. The fund changes are the meat of it. Here they are, side by side:

Asset Class	Old Fund	New Fund	Key Reason for Change
US Large-Cap Value	RPV Invesco S&P 500 Pure Value	AVLV Avantis US Large Cap Value	Lowers expense ratio by 0.20%/yr; RPV better categorized as mid-cap value
US Small-Cap Blend	IJR iShares Core S&P Small-Cap	AVSC Avantis US Small Cap Equity	+1.8%/yr higher factor-predicted expected return
Intl Small-Cap Blend	FNDC Schwab Fundamental Intl Small Co.	AVDS Avantis Intl Small Cap Equity	0.09%/yr lower expenses, more holdings, better factor stability
EM Small Cap Blend	EEMS iShares MSCI EM Small-Cap	AVEE Avantis EM Small Cap Equities	0.31% lower expense ratio, smaller avg. company size, better financials

There's a recurring pattern here: lower costs, deeper factor exposure, and more diversification. That's not coincidence — that's Avantis's entire product philosophy in four rows.

The two communication changes are worth a quick note. First, Merriman now includes relative factor-predicted expected annual returns for every fund, making it easier to compare options when you can't access the top pick. A "+1%" label means that fund is expected to return 1% more per year than the lowest-returning option in its category. Second, a new asset class was formally added: US Mid-Cap Value. This is where RPV now lives — a more honest home for a fund that, despite being labeled "S&P 500 Pure Value," skews heavily mid-cap in practice. Avantis's own mid-cap value fund, AVMV, is highlighted there as a compelling option for investors who want to tilt even harder toward size and value.

Why Avantis? The Methodology That Won the Scoreboard

To understand why Avantis dominates Merriman's list, you need to understand what separates a good ETF from a great one in the factor-investing world. It's not just expense ratios (though those matter). It's how reliably the fund actually captures the factors it claims to target.

Most traditional index ETFs — your IJRs and EEMSs — track a fixed rules-based index. Companies get added or removed based on rigid criteria, and the fund rebalances mechanically. There's no adjustment for whether a stock is cheap relative to its fundamentals or whether a small company is heading toward mid-cap territory.

Avantis takes a different approach, rooted in the academic tradition pioneered by Dimensional Fund Advisors (DFA). Their methodology:

• Overweights companies with stronger profitability — firms with higher return on equity and robust financials, consistent with the Fama-French-Carhart "quality" signal
• Tilts toward smaller, cheaper stocks within each asset class — without fully concentrating in micro-caps that bring excessive volatility
• Uses flexible trading to avoid the buy-high, sell-low behavior that pure index funds fall into when reconstitution dates are publicly known
• Maintains stable factor exposure over time — not just at index reconstitution, but continuously throughout the year

The result is a family of funds that consistently sit deeper in the value and size spectrums than their passive peers — while still being highly diversified and low-cost. That's exactly what Merriman's screening process rewards.

"Avantis' roots in academic research and commitment to discipline and rigor have pioneered bringing this methodology — previously only available in DFA mutual funds — to ETFs accessible by every investor." — Chris Pedersen, Merriman Financial Education Foundation

It's also worth noting that Avantis launched its ETF lineup in 2019. That's still relatively young in track-record terms, but the factor-predicted expected return framework doesn't require decades of history — it uses the actual portfolio characteristics (valuation, profitability, size) to project forward-looking expectations. The data speaks for itself: where Avantis has history, the results have backed the predictions.

Let's Talk Performance (Without Getting Carried Away)

Past performance doesn't predict future results — that's not a legal boilerplate, it's genuinely true in factor investing, where strategies can underperform for years before the premium shows up. With that firmly stated, here's how Avantis ETFs have actually performed:

Those are notable numbers, and they reflect a period when small-cap and international stocks broadly outperformed US large-cap. But the more relevant table is this one — showing the key characteristics of the core Avantis lineup across different asset classes:

ETF	Asset Class	1-Year Return	3-Year Ann. Return	Expense Ratio
AVUS	US Total Market	+21.65%	+17.69%	0.15%
AVUV	US Small Cap Value	+28.72%	+16.19%	0.25%
AVLV	US Large Cap Value	+25.26%	+18.27%	0.15%
AVSC	US Small Cap Blend	+30.16%	+13.66%	0.33%
AVDV	Intl Small Cap Value	+48.30%	+24.07%	0.36%
AVDS	Intl Small Cap Blend	+35.81%	—	0.23%
AVES	Emerging Markets Value	—	—	0.36%
AVEE	EM Small Cap Blend	—	—	0.36%

Sources: PortfoliosLab, Avantis fund fact sheets. Returns are trailing figures as of available data. AVDS and AVEE are newer funds with limited 3-year track records. Past performance is not indicative of future results.

One thing worth noting: AVSC's expense ratio (0.33%) is higher than the IJR it replaced (0.06%). That's the one instance where cost went up. But Merriman is explicit about the tradeoff: the factor-predicted expected return advantage of 1.8%/yr more than justifies the extra 0.19% in annual expenses. You're not paying more for the same thing — you're paying for a meaningfully different factor profile. Whether that plays out depends on small-cap and value premia continuing to exist. We believe they will. Decades of evidence backs that belief, even if any given year proves otherwise.

The Intellectual Lineage: Bogle → Fama/French → Avantis

It helps to understand how we got here. Merriman's investing philosophy didn't spring from thin air — it evolved through three distinct eras of evidence-based investing.

Era 1: Bogle's S&P 500. Jack Bogle's founding insight was simple but revolutionary: most active managers underperform the market after fees, so just own the market. The Vanguard 500 Index Fund was the vehicle. Cap-weighted, passive, cheap. This works. It still works. It's why VOO and VTI are perfectly sensible long-term investments.

Era 2: Fama-French Factor Research. In the early 1990s, economists Eugene Fama and Kenneth French published research showing that beyond overall market returns, two additional factors — size (small beats large over time) and value (cheap beats expensive) — were historically associated with higher returns. This wasn't market-timing or stock-picking. It was a structural insight: certain types of stocks tend to outperform. Dimensional Fund Advisors (DFA) built a mutual fund business around this research, but for decades the funds were only accessible through fee-only advisors.

Era 3: Factor ETFs. When Avantis launched in 2019 — founded by former DFA executives — they brought the same methodology to ETFs available to anyone with a brokerage account. No advisor required. Suddenly, retail investors could access institutional-quality factor exposure at low cost. That's the structural shift Merriman's 2025 list reflects.

Ten out of eleven recommendations being Avantis isn't a coincidence. It's the natural endpoint of that intellectual lineage arriving at scale.

What This Means for VTI & Chill's Portfolio Tiers

Here's where the rubber meets the road for our readers. VTI & Chill organizes portfolio recommendations into three tiers — Good, Better, and Best — each representing a different level of diversification, complexity, and factor exposure.

Good (2 funds): VTI + VNQ. Simple, cheap, broadly diversified. If you don't want to think about it, this is your answer. No Avantis required, no annual rebalancing complexity. This is what Bogle built the world for.

Better (4 funds): Adds international and some value tilt to the mix. More diversification, still manageable. A solid middle ground for investors who want to reach beyond the S&P 500 without building a 10-fund portfolio.

Best (10 funds): This is where Merriman's 2025 recommendations plug directly in. Our Best tier currently holds: AVUS, AVUV, AVLV, AVSC, AVDV, AVDS, AVES, AVEE, VNQ, and VOO. It's the full Merriman-aligned factor portfolio — small, value, international, and emerging markets exposure across the board. The 2025 updates (AVLV replacing RPV, AVSC replacing IJR, AVDS replacing FNDC, AVEE replacing EEMS) are already reflected in our recommendations.

One Honest Caveat About Factor Investing

We'd be doing you a disservice if we presented all of this without a clear-eyed acknowledgment: factor premia are not guaranteed, and they can underperform for extended periods.

US small-cap value (AVUV's domain) had a brutal stretch from roughly 2007–2020 — over a decade of relative underperformance vs. the S&P 500. Investors who held through it were eventually rewarded. Many didn't hold through it. That's the real risk of factor investing: not volatility, but behavioral risk — the risk that you abandon the strategy right before it pays off.

If you can't stomach watching a factor-tilted portfolio lag the Nasdaq for three to five years, the Best tier isn't for you. The Good tier will serve you well. The point of diversification across factors isn't just to chase returns — it's to avoid concentration risk, including the risk of being 100% exposed to a single factor (market beta) that itself can underperform for a decade. The S&P 500 returned essentially zero from 2000–2010. Broad factor diversification is your hedge against that happening again to whatever asset class you happen to own.