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Four Ideas for Exposure to Foreign Small Caps

Most of the good ones are closed--but not all.

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No doubt about it, foreign small-cap funds have had an amazing run. A global small-cap rally and a falling dollar have led to outstanding returns for foreign small-cap funds, and that has spurred many to close the doors to new investors. In fact, all of our foreign small/mid-value and foreign small/mid-growth Fund Analyst Picks are closed.

As a result, I'm fielding a lot of questions about where one can turn for a good foreign small-cap fund. I've come up with a few ideas, but first I have to share a big caveat. Whenever an asset class has such hot returns that funds are closing left and right, the savvy investor steers clear. It usually means that the securities are due for a correction, and it always means the risks of a correction have gone up considerably.

Moreover, you don't have to own a fund dedicated to foreign small caps to have some exposure there. Check any foreign or world-stock funds you own and you might find they have a meaningful slug of small- or mid-cap stocks. However, if you don't have any foreign small-cap exposure and plan on holding for 10 years or more, I can see some merit in establishing a small position in foreign small caps.

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Russel Kinnel has a position in the following securities mentioned above: DFISX. Find out about Morningstar’s editorial policies.