Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Correct into Bitcoin Happy Thanks Halving - Earnings Season Buying Opps - 4th July 24
24 Hours Until Clown Rishi Sunak is Booted Out of Number 10 - UIK General Election 2024 - 4th July 24
Clown Rishi Delivers Tory Election Bloodbath, Labour 400+ Seat Landslide - 1st July 24
Bitcoin Happy Thanks Halving - Crypto's Exist Strategy - 30th June 24
Is a China-Taiwan Conflict Likely? Watch the Region's Stock Market Indexes - 30th June 24
Gold Mining Stocks Record Quarter - 30th June 24
Could Low PCE Inflation Take Gold to the Moon? - 30th June 24
UK General Election 2024 Result Forecast - 26th June 24
AI Stocks Portfolio Accumulate and Distribute - 26th June 24
Gold Stocks Reloading - 26th June 24
Gold Price Completely Unsurprising Reversal and Next Steps - 26th June 24
Inflation – How It Started And Where We Are Now - 26th June 24
Can Stock Market Bad Breadth Be Good? - 26th June 24
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Think Small Cap Stocks When Investing International

Stock-Markets / Investing 2010 Sep 02, 2010 - 09:01 AM GMT

By: Ron_Rowland

Stock-Markets

Best Financial Markets Analysis ArticleYou won’t be surprised when I say the U.S. markets are lousy right now. Can you find niches that are performing well? Sure — I often highlight these for you when I see them. But most U.S. stocks and sectors are going sideways at best. Moreover, I don’t see the situation changing in the near future.


This doesn’t mean you’re stuck in a low-yielding cash account, though. The world is full of opportunity for those who know where to look. Places like South America and Southeast Asia are still growing nicely, despite weakness in the U.S. and Europe.

Today I’ll show you how to follow this theme with an emerging new category of exchange traded funds (ETFs): International small-caps.

Small-Caps: The Key to Growth

U.S. investors are familiar with the superior growth potential of small-cap stocks. It just makes sense … the big blue chips are hostage to their own size and scale.

A small technology outfit, for example, can potentially double its earnings easier and faster than General Electric (GE) can.

The other side of this coin, of course, is that the small technology outfit is also more likely to go completely out of business. GE is probably not going anywhere — though after what we’ve seen over the last few years we can’t rule out any possibility.

Blue chips, like GE, have a good chance of surviving the recession.
Blue chips, like GE, have a good chance of surviving the recession.

This company-specific risk is why small-cap stocks are more volatile. It’s also a good reason to diversify your holdings across a large number of individual stocks. Small-cap ETFs and mutual funds are an easy way to do this.

Small-Cap Advantage: Domestic Focus

Small-caps have another characteristic that is important in an international context. They tend to be less dependent on exports and more exposed to the local economy.

Again, this makes sense if you think about it …

Giant multinational corporations, by definition, do business all over the world. This makes them less cyclical. But it also means they won’t benefit as much from booming conditions in any one place.

Some small companies are very involved in exports, too. But for the most part they tend to do their business locally — or at least in the same country. This means they provide more concentrated exposure to their nation’s economy.

Now, let’s put two and two together:

If international markets are growing faster than the U.S. …

And if small-caps have the most growth potential

And those same small-caps give you the most direct exposure to foreign economies …

 … then doesn’t it make sense to direct your dollars into international small-caps?

Small-caps have the most profit potential.
Small-caps have the most profit potential.

Of course! This is just as true now as it ever was. The difference is that with ETFs you now have many more ways to invest in this category.

In fact, I count around two dozen international small-cap ETFs now available. They cover a wide variety of markets: Developed, emerging, Europe, Japan, China and many others.

More such ETFs are coming out all the time. I don’t have room to give you the complete list and it would likely be outdated soon anyway. However, here are a few ideas for you to review:

Vanguard FTSE All-World Ex-U.S. Small-Cap (VSS) has the broadest available international small-cap exposure and covers both developed and emerging markets. Like most Vanguard products, it also has a reasonable cost structure.

Schwab International Small-Cap Equity (SCHC) and iShares MSCI EAFE Small-Cap (SCZ) are both similar, but they focus on just the developed markets.

Asia has some of the hottest small-cap stock markets.
Asia has some of the hottest small-cap stock markets.

Incidentally, both Vanguard and Schwab offer free (or very inexpensive) trading commissions for their in-house ETFs via their brokerage affiliates. Fidelity does the same thing with many of the iShares ETFs including SCZ. There are some restrictions, but penny-pinching investors should take note.

WisdomTree Emerging Markets Small-Cap Dividend (DGS) and SPDR S&P Emerging Markets Small-Cap (EWX) exclude the developed markets like Canada, Japan, and the U.K. and cover the emerging markets small-cap group. This is good because most of the developed market countries are not doing much better than the U.S.

If you’re looking to zero in on small-caps in the hottest Asian markets, you have several good choices. Take a look at …

  • Claymore/AlphaShares China Small-Cap (HAO)
  • IQ South Korea Small-Cap ETF (SKOR)
  • IQ Taiwan Small-Cap ETF (TWON)
  • Market Vectors India Small-Cap (SCIF)
  • EGS INDXX India Small-Cap (SCIN)

Finally, let’s not forget about our neighbors to the South. I’ve written before about Market Vectors Brazil Small-Cap (BRF). A somewhat broader choice is Market Vectors Latin America Small-Cap (LATM).

Some of the ETFs I just listed are new and don’t have much operating history. As always, do your own research to see if they’re a good fit for you before you buy.

New international small-cap ETFs are coming out quickly, so there will probably be even more choices soon. Watch them closely. I bet you will find something to like.

Best wishes,

Ron

P.S. I offer specific global ETF buy and sell ideas, including international small-caps, in my International ETF Trader service. Right now you can subscribe to this service at an unprecedented low rate. Click here for details.

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Tom
05 Sep 10, 20:55
All cap all market ex-US index?

If I wanted to compare the market cap segmentation of my international exposure to an all cap (not limited to large, mid, small, etc., but including all caps), all markets (developed & emerging), value weighted, is there any such broad international index? Or say any two indices which in properly weighted combination would represent the ex-US world, in toto?


Post Comment

Only logged in users are allowed to post comments. Register/ Log in