Grow your portfolio internationally.
International small-capitalization stocks are one of the best segments of the market where investors are better served by investing in funds rather than individual names. But they can be difficult to research. Small-cap stocks have less analyst and media coverage, and it can be difficult to find much English language coverage of all but the biggest foreign stocks. Combine the two, and you’ll often find yourself wandering in the dark. These exchange-traded funds take the weight off your shoulders, giving you access to numerous flavors of international small caps.
iShares MSCI EAFE Small-Cap ETF (ticker: SCZ)
The SCZ is the largest international small-cap fund on the market at nearly $6 billion in assets. It focuses on small-cap stocks in the developed-market MSCI EAFE Index, and it has a decided bent toward Japanese and U.K. stocks, which comprise a respective 31 percent and 18 percent of the fund. You might expect tech or health care to feature prominently, but industrials lead at 22 percent, followed by discretionary stocks at more than 15 percent. One thing to love: No stock makes up more than 0.33 percent of the fund; France telemarketing specialist Teleperformance SE currently holds that top weight.
Expenses: 0.4 percent, or $40 per $10,000 invested.
Vanguard FTSE All-World ex-US Small-Cap ETF (VSS)
If you’re looking to capture the world with a much broader stroke, Vanguard’s VSS might be more your speed. While SCZ invests in 1,623 stocks across 12 countries, the VSS invests in more than double that (3,300) across roughly 45 countries. That isn’t to say VSS is without lopsided geographical weights, but they’re much less pronounced; Japan is more than 15 percent of the fund, Canada is more than 14 percent and the U.K. is close to 12 percent. Meanwhile, you also get exposure to bigger emerging markets such as China, and smaller ones including Egypt and the Philippines.
Expenses: 0.17 percent
Schwab International Small-Cap Equity ETF (SCHC)
If you’re simply focused on finding the cheapest way to invest internationally, you’ll be unsurprised to find that Schwab can get you into the world’s small caps for cheaper than anyone else. That said, there’s nothing much novel about this one. It’s similar to VSS in that Japan, the U.K. and Canada make up the biggest chunks of the fund, and it’s like both SCZ and VSS in that industrials and consumer discretionary top the sector weights.
Expenses: 0.16 percent
WisdomTree International SmallCap Dividend Fund (DLS)
While most would consider small-caps to be a growth play, WisdomTree’s DLS attempts to squeeze income out of the world’s tinier companies. DLS invests in more than 900 companies across 23 companies, including a tiny allocation (0.17 percent) to the U.S. Japan and the U.K. lead at a combined 40 percent-plus of the fund. Nearly a quarter of the ETF’s holdings are industrials, with roughly 20 percent more apiece to discretionary and financials. That makeup results in a fund yield of about 3 percent based on the past four payments.
Expenses: 0.58 percent
SPDR Euro Stoxx Small Cap ETF (SMEZ)
There are a number of ways to target specific regions with a small-cap bent, including the SMEZ, which invests in the Euro Stoxx Small index. Heavy weights to industrials (18 percent) and consumer discretionary (17 percent) stocks are par for the course, but a thin holdings roster isn’t. SMEZ holds just 93 stocks across 10 countries, with French and German companies alone accounting for about half the fund. The top holding, however, currently belongs to Finland, with food packaging specialist Huhtamaki Oyj making up 1.8 percent of the fund.
Expenses: 0.45 percent
WisdomTree Europe Hedged SmallCap Equity Fund (EUSC)
WisdomTree specializes in “hedged” funds — ETFs that not only invest in a particular area’s stocks, but also hedge against fluctuations in their currencies. The EUSC is one such fund, investing in dividend-paying European small-caps while using currency hedges that help the fund perform better when the euro is weak — which currently is the case. While industrials lead here, too, at 24 percent, financials make up a whopping 20 percent of the fund. Geographical distribution is good, too, with five countries (Italy, France, Germany, Spain and Finland) at double-digit weights. EUSC also is a strong dividend play at a nearly 4 percent yield.
Expenses: 0.58 percent
iShares MSCI Japan Small-Cap ETF (SCJ)
You might be disappointed to find out that the Japanese small-cap ETF isn’t overloaded with technology stocks, but an important thing to remember is how much industrial companies are intertwined with technology nowadays. Take SCJ top component Misumi, whose U.S. division is responsible for some 9 million-plus automation components for numerous industries, from health care to vehicles. All told, SCJ provides ample exposure to consumer, IT, real estate and materials. Energy and utilities are practically an afterthought.
Expenses: 0.48 percent
IQ Australia Small Cap ETF (KROO)
MainStay Investments’ Index IQ fund, KROO, has just $9 million in assets and trades literally only thousands, and sometimes just hundreds, of units each day. But anyone in KROO this year has enjoyed 23 percent returns — quadruple both the Standard & Poor’s 500 index and the large-cap iShares MSCI Australia (EWA) fund’s 5 percent returns. KROO’s also a refreshing change in that industrials aren’t even a top-three holding. Instead, materials lead at about a quarter of the fund, followed by discretionaries (20 percent) and health care (14 percent). Top holding is Ansell, which manufactures surgical gloves and condoms, among other products.
Expenses: 0.7 percent
IQ Global Agribusiness Small Cap ETF (CROP)
Index IQ also offers a few industry-specific funds, such as CROP, which invests in companies involved in businesses such as farming, livestock, ag machinery, chemicals and crop production. CROP is as focused a fund as there is in the small-cap world, featuring just 49 companies currently across a handful of countries. Top holdings Nisshin Seifun Group and Nichirei Corp. make up 9 percent and 5.6 percent of the fund, respectively, and make up a large part of Japan’s 38.5 percent country weight. Next highest? The U.S., so CROP isn’t an entirely international fund.
Expenses: 0.76 percent
IQ Global Oil Small Cap ETF (IOIL)
The final fund on this list of international small-caps is also the least international. IOIL holds 67 companies, more than half of which are American. You only have to travel a little farther north to Canada to find another 14 percent; eight countries split the remaining 30 percent. IOIL covers the spectrum, from E&P to refining to services, and is like other energy funds in that it has struggled for years, but is poised to rebound smartly when oil prices rebound. One word of warning: This and the other Index IQ ETFs are thinly traded and have sparse assets under management.
Expenses: 0.76 percent
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10 Ways to Buy International Small-Cap Stocks originally appeared on usnews.com
