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Another Shining Global Small-Cap ETF


While U.S. small-caps and the major exchange traded funds holding those stocks have recently come under pressure, ETFs tracking international small-caps have stood firm.

That is particularly true of emerging markets small-cap ETFs. Just look at the SPDR S&P Emerging Markets SmallCap ETF (EWX) . Having celebrated its sixth anniversary earlier this month, EWX is one of the elder statesman among emerging markets small-cap ETFs, but the $654.1 million ETF is not showing signs of slowing down.

Over the past 90 days, EWX is up 7.4% compared to an average loss of 2.5% for the iShares Russell 2000 ETF (IWM) and the Vanguard Small-Cap ETF (VB). [Global Small-Cap ETFs Top U.S. Rivals]

Although the combination of emerging markets stocks and small-caps under the roof of one ETF could lead investors to think EWX is an overly volatile ETF, the fund alleviates some of that concern with a 29.4% allocation to Taiwan, one of the least volatile emerging markets. [Time for Taiwan]

Speaking of volatility, EWX has been slightly less volatile than IWM and VB over select time frames. EWX has also been less volatile than the Vanguard FTSE Emerging Markets ETF (VWO) and the iShares MSCI Emerging Markets ETF (EEM) over the past three years while slightly outperforming the two largest emerging markets ETFs, according to ETF Replay data.

EWX offers another advantage to investors: Solid exposure to Indian small-caps. The ETF devotes 13.4% of its weight to India, making it EWX’s third-largest country weight. By comparison, the MSCI Emerging Markets Index has a weight of about 7% to India and the country is merely EEM’s sixth-largest geographic allocation.

The allocation to Indian small-caps cannot be understated as an important driver of EWX’s recent bullishness. Over the past three months, the Market Vectors India Small-Cap Index ETF (SCIF) , EGShares India Small Cap Fund (SCIN) and the iShares MSCI India Small-Cap ETF (SMIN) have produced an average gain of 54%. [Post-Election Opportunity for India Small-Cap ETFs]

Then there is the yield. Although EWX is not an explicit dividend, nor is it especially high-yielding, the fund does sport a dividend yield of 2.2%, or 90 basis points above the trailing 12-month yield on IWM.

The decent though not spectacular yield on EWX comes by way of an almost 43% combined weight to Taiwan and China, countries with two of the more favorable dividend policies in the emerging world.

Financial services are EWX’s largest sector weight at 20.3%, but the ETF does offer a combined 33% weight to the technology and consumer discretionary sectors, which have been two of the better performers relative to the MSCI Emerging Markets Index over the past several years.

SPDR S&P Emerging Markets SmallCap ETF


Tom Lydon’s clients own shares of EEM and IWM.