3 ETF Options for International Small-Cap Exposure
Vanguard FTSE All-World ex-US Small-Cap provides exposure to both developed- and emerging-markets small caps, while WisdomTree offers a dividend-focused ETF and a currency-hedged ETF.
Patricia Oey: I recently wrote an article on international small-cap ETFs that highlighted the Vanguard FTSE All-World ex-US Small-Cap ETF (VSS). This fund gives you a very diversified portfolio with exposure to both developed- and emerging-markets small caps for only 19 basis points. As emerging markets have underperformed over the last few years, so has this ETF, as most international small-cap funds have little or no allocation to emerging markets.
A number of readers wanted to know more about the WisdomTree International SmallCap Dividend ETF (DLS). Like most WisdomTree funds, this is a dividend-focused ETF, which weights its constituents by annual dividends paid. Interestingly, although this fund has a value tilt, it has been slightly less volatile than a market-cap-weighted benchmark. Another thing to note is this fund's large 16% weight in Australia. Australian companies tend to pay out relatively high dividends, and this is partly due to the fact that Australian dividends are not taxed twice, as they are here in the U.S. While Australian stocks have been performing well, the Aussie dollar has declined sharply against the U.S. dollar over the last six months. So, this overweight in Australia has hurt this fund's returns.
Patricia Oey does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.