U.S. Markets open in 6 hrs 59 mins

International Small-Cap ETFs Hit New Highs: Here's Why

Sanghamitra Saha

U.S. small-cap stocks have lagged large-cap indexes many times this year. Though the space has gained momentum of late, iShares Russell 2000 ETF IWM is still lying below the Nasdaq in the past three-month frame (as of Dec 6, 2019).

On the other hand, things are rosier in international economies. Policy easing has played a major role in driving global economic growth. The European Central Bank (ECB) slashed its main deposit rate by 10 basis points to negative 0.5% — a record low but on par with market expectations — and launched a quantitative easing (QE) program from Nov 1(read: ETFs to Gain & Lose as ECB Starts QE, Cuts Rates).

Most developed economies, which were facing deflationary threats for long, are slowly returning to the inflationary track. Euro zone consumer prices accelerated more than expected in November. Japan's consumer price inflation was 0.2% year over year in October of 2019, unchanged from September.

Along with developed economies like the Euro zone and Japan, emerging markets, as a whole, are better placed now. Separately, Eurostat said unemployment in the Euro zone dropped to 7.5% of the workforce in October, the lowest rate since July 2008. The unemployment rate in Japan remained steady at 2.4% in October 2019, in line with market expectations despite huge declines in industrial production and exports.

Why Small-Caps Are Better Positioned to Play the Recovery

Small caps are considered the measure of domestic well-being. In a growing economy, these pint-sized securities perform the best as these generate most of their revenues from the domestic market. These are less ruffled by global economic turmoil.

A wave of cheap money in international markets will lead to stepped-up economic activities, and raise business and consumer confidence. This in turn will benefit small-cap companies. Probably this is why international small-cap ETFs hit a 52-week high lately.  

Against this backdrop, below we highlight a few international small-cap ETFs that have been hovering around a 52-week high.

Japan Small-Cap iShares MSCI ETF SCJ

The underlying MSCI Japan Small Cap Index targets 40% of the eligible small-cap universe within each industry group in the MSCI Japan Index, which consists of stocks traded primarily on the Tokyo Stock Exchange. The fund has a Zacks Rank #2 (Buy).     

Europe Small-Cap Dividend Wisdomtree DFE

The underlying WisdomTree Europe SmallCap Dividend Index is a fundamentally weighted index that measures the performance of the small-capitalization segment of the European dividend-paying market. The fund has a Zacks Rank #3 (Hold).

USA Min Vol Small-Cap iShares Edge MSCI ETF SMMV

The underlying MSCI USA Small Cap Minimum Volatility (USD) Index comprises small-capitalization U.S. equities that, in aggregate, have lower volatility characteristics relative to the small-capitalization U.S. equity market. The fund has a Zacks Rank #3.

Europe Small-Cap iShares MSCI ETF IEUS

The underlying MSCI Europe Small Cap Index captures small-cap representation across the 15 developed markets in Europe. The fund has a Zacks Rank #3.

United Kingdom Small-Cap iShares MSCI ETF EWUS

The underlying MSCI United Kingdom Small Cap Index measures the performance of equity securities of small-capitalization companies whose market capitalization represents the bottom 14% of the British securities market. Component companies include consumer discretionary, financial and industrial companies. The fund has a Zacks Rank #3.

Schwab International Small-Cap ETF SCHC

The underlying FTSE Developed Small Cap ex US Liquid Index comprises small capitalization companies in developed countries outside the United States having a minimum free float capitalization of $150 million.     

International Smallcap Dividend Wisdomtree DLS

The underlying WisdomTree International SmallCap Dividend Index is a fundamentally weighted index that measures the performance of the small-capitalization segment of the dividend-paying market in the industrialized world outside the U.S. and Canada.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>