But flexible investors do have a few fine options for global small-cap exposure.
The case for global smaller-cap funds is clear. Such funds have significant diversification value as well as considerable capital-appreciation potential. The small-cap space is less closely followed and thus less efficient than the large-cap space, particularly outside the United States, so managers of such funds have ample opportunity to add lots of value. That's because these managers have the freedom to go wherever the top smaller companies are, while their U.S., foreign, and regional counterparts do not.
But finding good global smaller-cap funds is much easier said than done. More than three fourths of world-stock funds are large-cap offerings. Most of the rest are all-cap vehicles rather than genuine smaller-cap funds. And even the best of the all-cap world-stock vehicles are unlikely to satisfy investors seeking global small-cap exposure due to their often sizable stakes in large-cap stocks.
Meanwhile, many of the true global smaller-cap funds have one or more flaws that render them unattractive. Some of them are in unproven hands or have seen significant manager turnover in recent years, for example, while others employ overly bold strategies or have posted disappointing results given how well small-cap stocks have performed in the 2000s.
But investors seeking global smaller-cap exposure needn't give up. There are a couple of front-load world-stock funds that focus on smaller caps and are quite attractive overall.
On the no-load side, there is one such offering that has lots of potential. And there are a pair of no-load small-cap domestic-equity funds that pay significant attention to overseas opportunities and are proven winners. Here are the details on all five funds.
Two Fetching Front-Load World-Stock Vehicles
American Funds SMALLCAP World
Meanwhile, the managers have added value with their stock selection in a mix of climates throughout the 2000s, and this fund has outpaced the typical global smaller-cap offering during the trailing five- and 10-year periods while incurring relatively moderate volatility. An attractive expense ratio of just 1.13% adds to its appeal.
BlackRock Global Small Cap
Thanks to the tame aspects of the managers' strategy, as well as the team's skill, this fund has held up much better in sell-offs than have most global small-cap offerings, and it's suffered significantly less volatility overall. And management's reserve has been burdensome in certain rallies, the fund earned a 7.2% annualized return from the time the team took over through May 24, 2011, while the typical global smaller-cap offering posted a 6.2% annualized gain.
One Promising No-Load World-Stock Offering
Royce Global Value
What's more, George has executed his discipline deftly throughout his tenure here. This fairly young fund delivered a 10.6% annualized return from its inception at the end of 2006 through May 24, 2011, while the typical global smaller-cap offering posted a 2.2% annualized gain. This offering has been more volatile than most of its rivals, largely due to George's willingness to build big sector stakes, but it clearly has lots of potential. Its prospects would be even brighter if its expense ratio--which is currently capped at 1.69%--declined significantly. (The median no-load world-stock offering has an expense ratio of 1.23% and the median no-load foreign small/mid cap offering has an expense ratio of 1.37%.)
Two No-Load Domestic-Equity Funds with Broad Purviews and Ample Merit
Royce has expanded this fund's geographic range as the firm's foreign equity capabilities have expanded in recent years. Indeed, this fund now has roughly one fourth of its assets invested in a diverse mix of international stocks, such as Canada's Ritchie Bros Auctioneers
Wasatch Small Cap Growth
Meanwhile, Cardon, who invests in a mix of fast and steady growers and employs an effective valuation discipline, readily considers foreign companies that meet his exacting standards. The fund currently has more than 20% of its assets in overseas names, in fact, including top-20 holdings Wirecard (a German electronic-payment-services provider) and HFDC Bank