Two Global Small-Cap ETFs Merit Consideration


It has been a good year for small-caps and the major ETFs that house them. The iShares Russell 2000 Index Fund (NYSE:IWM) is up 14.3 percent year-to-date while the Vanguard Small-Cap ETF (NYSE:VB) is higher by 15.6 percent.

Decent performances to be sure, but not spectacular when considering the SPDR S&P 500 (NYSE:SPY) is up 14.9 percent with noticeably less volatility.

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Increased volatility is usually part of the equation when dealing with small-caps, even more so when evaluating global small-cap equities and ETFs. However, those investors that are willing to take a look at international stocks with smaller market caps can find some rewarding options.

Better yet, let ETFs remove the stock-picking burden and consider these international small-cap funds that offer more upside for the rest of this year.

WisdomTree Europe SmallCap Dividend Fund (NYSE:DFE) There are a couple of things about this ETF that need to be addressed right off the bat. Yes, DFE is a dividend ETF, but it is not a great yield play as its 30-day SEC yield is just 1.93 percent. Second, it is fair to say most investors know playing with some Europe ETFs large-cap, small-cap or otherwise, can be kind of like playing fire.

With the U.K. and Italy, two economies mired in deep recessions, combining for over 39 percent of DFE's country weight, one might wonder why this fund is worth a look. Germany, Sweden and Norway combing for about 26 percent of the ETF's weight helps. Additionally, most of the few remaining members of the AAA sovereign credit rating club receive some allocation in this ETF.

Bottom line with DFE: If Europe becomes a more sanguine place to invest and investors embrace European cyclicals, this ETF will benefit. DFE is up almost eight percent year-to-date. The ETF has an annual expense ratio of 0.58 percent and $60.5 million in assets.

SPDR S&P Small Cap Emerging Asia Pacific ETF (NYSE:GMFS) If some issues regarding DFE needed to be addressed before evaluating the upside of that ETF, then there are some warning labels with the the SPDR S&P Small Cap Emerging Asia Pacific ETF. GMFS is 16 months old and only has $2.29 million in assets under management and folks do not get around to trading this ETF everyday. In fact, it last traded on May 6.

We are not in the business of forecasting ETF closures, but it should be noted that other ETFs that have focused on Southeast Asian small-caps have closed. Those that are still around are struggling. Investors love the region's large-caps and the relevant ETFs, but have been slow to consider smaller stocks here.

Those disclaimers belie the potential offered by GMFS, which has returned nearly seven percent year-to-date. At the country level, this fund is not excessively risky with Taiwan and China combining for 64 percent of the ETF's weight. However, GMFS does offer decent exposure to some of the region's better-performing markets with Indonesia, Malaysia, Thailand and the Philippines combining for 24 percent of the ETF's weight.

GMFS has a couple of nifty surprises including a beta of just 0.17, a dividend yield of 3.48 percent and a lower P/E ratio than the MSCI Emerging Markets Index, according to State Street data.

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