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ETF Specialist

This Small-Cap Fund Provides Better Exposure to Foreign Economies

Diversification potential comes with some risk.

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Some of the oldest foreign index-tracking funds focus on large-cap stocks. But several fund providers also offer complementary small-cap funds that tap into a wider range of overseas stocks. Unlike large multinational corporations, small-cap firms tend to derive a majority of their revenue from their local economy. Therefore, they provide better exposure to foreign economies, offering an incremental diversification benefit over the multinationals that dominate many large-cap index-tracking funds.  Schwab International Small-Cap Equity ETF (SCHC) focuses on small firms from foreign developed markets. Its solid index-tracking performance and low fee earn a Morningstar Analyst Rating of Bronze.

SCHC tracks the FTSE Developed Small Cap ex-U.S. Index. It holds small-cap stocks listed in 23 developed markets outside of the United States and weights them by market capitalization. This approach helps mitigate turnover and the associated trading costs, and it reflects the market’s collective wisdom about the relative value of each holding.

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Daniel Sotiroff has a position in the following securities mentioned above: SCHC, DFISX. Find out about Morningstar’s editorial policies.