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2 Attractive International Small Cap ETFs: WisdomTree Europe SmallCap Dividend Fund And WisdomTree Japan SmallCap Dividend Fund

Published Mon, 29 Jul 2019 14:07:23 -0400 on Seeking Alpha

The Case for International Small Cap
Higher return/risk. It is well known that over the long term, the U.S. stock market has exhibited a "small cap effect." Although small cap stocks have had a higher level of volatility, their higher returns have more than compensated for that. The same is even more true of international small cap stocks - note in the graph below that the return/risk tradeoff between small cap and large cap is much steeper for international than for U.S. stocks.

Source: Graph created by author using data from FactSet
Lower correlation. International small cap stocks have had a consistently lower correlation with U.S. stocks than have large cap international stocks. This makes sense in that smaller companies are typically more focused on their local economies and less influenced by global factors.

Source: Graph created by author using data from FactSet
Fewer SEOs. State-owned enterprises (SEOs) tend to put government political objectives ahead of shareholder interests. Consequently, their stock performance often lags behind the local stock market average return. SEOs tend to be among the largest corporations within their local markets. A fund with an emphasis on smaller companies means fewer SEOs are likely to be in the portfolio.
Lower trade war impact. Small cap stocks typically do not have as large a percentage in global sales as large cap stocks. Most of their business is in their local economies. In an... Read more


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