Established market wisdom suggests small cap companies tend to outperform large ones over the long-run.
However, the past decade has mostly seen small-caps lag large-caps, especially in the US. For example, over the past ten years, the compound annual growth rate for the small-cap Russell 2000 index is about 7.5%, while it is over 10.5% for the broader S&P 500.
That means that $1,000 invested in exchange-traded funds (ETFs) ten years ago such as the iShares Russell 2000 ETF (NYSE:IWM) that tracks the Russell 2000 index and in the SPDR S&P 500 (NYSE:SPY) that tracks the S&P 500 would be around $2,100 and $2,700, respectively.
Yet, lately, there has been more positive momentum in small-caps. For November, the Russell 2000 is up over 15%, whereas the S&P has increased by only around 10%.
Thus, now may be a good time to look at exchange-traded funds with small-cap exposure. Earlier in the year, in addition to IWM, we also discussed the Vanguard Small-Cap Growth Index Fund ETF Shares (NYSE:VBK).
Those looking to invest in small caps with added diversification advantages may consider small caps listed on overseas markets. Research by Meketa Investment Group highlights the benefits of investing in international small caps, saying:
“Because of the benefits of diversification, investors generally experience lower overall volatility if they invest in foreign markets… [S]maller companies may provide investors with exposure to newer developing goods, technologies, or services. For the period 1975 through 2018, small capitalization developed international stocks returned 11.0% per annum versus 9.8% for large capitalization developed international stocks.”
Here is an ETF for exposure to small caps with a non-US and non-China international focus:
iShares MSCI EAFE Small-Cap ETF
Current Price: $63.67
52-Week Range: $7.73 – $63.95
Dividend Yield: 2.82%
Expense Ratio: 0.40%
The iShares MSCI EAFE Small-Cap ETF (NASDAQ:SCZ) offers access to small-caps in Europe, Australia, Asia and the Far East. Businesses from Japan have the highest weighting (20.79%), followed by the UK (17.29%), Australia (8.74%), Sweden (7.34%), Germany (5.41%), and Switzerland (5.33%), among others. The fund started trading in 2007.
Continue reading at Investing.com right here: https://www.investing.com/analysis/international-small-cap-without-exposure-to-the-us-or-china-200544982
