Ex-US small-cap ETFs to Consider as Global Markets Heat Up

As the world’s largest economy, the U.S. economy is likely to grow at a slower pace than countries with smaller, less-developed economies.  Not to mention the painful effects that are still playing out for economies around the globe, due to COVID-19.  But some of these beaten down economies are likely to recover swiftly.  

Investors are placing their bets through the use of exchange traded funds that focus on an asset class that is often overlooked but should be a core component of any long term portfolio –  small caps listed outside of the U.S.. 

Massive international monetary and fiscal policy easing to counter the economic fallout from pandemic lockdowns helped steady global markets last month.  However, most international ETFs are dominated by mega cap stocks of companies that operate internationally, usually including operations in the United States.  Small-cap stocks better reflect the domestic economic strength and have historically exhibited a risk/return profile very different from their large cap counterparts.   

Things could be just starting to heat up in international and emerging markets.  In this article we’ll take a look at three foreign small-cap ETFs to consider if you still need exposure. 

Vanguard FTSE All-World ex-US Small Cap ETF (VSS) seeks to track the performance of a benchmark index that measures the investment return of international small-cap companies. The fund roughly tracks the performance of the FTSE Global Small Cap ex US Index. 

Most broad ex-U.S. ETFs primarily focus on large cap stocks, and feature portfolios that have minimal allocations to small or mid cap stocks.  Because large cap stocks are often multinational firms that generate their revenue globally (including the U.S.), they won’t always be great pure plays on the local economy.  VSS offers exposure to smaller companies, an asset class that can round out exposure and serve as a nice complement to other investments. 

Advanced markets like Canada and Japan make up the bulk of the allocation, but VSS does have some exposure to emerging economies like India and Mexico.  VSS offers exposure to over 4,000 companies spread across the globe for a low fee when compared to its peers.  VSS has an expense ratio of just 0.11% while ERShares NextGen Entrepreneurs ETF (ERSX) costs 0.75%.  VSS also comes along with a yield of 1.73%. 

Things could be just starting to heat up in international and emerging markets, and VSS is an excellent choice if you’re looking for exposure.  

Vanguard FTSE All-World ex-US Small Cap ETF (VSS)

• Weighted Average Market Cap    $2.68B
• Price/ Earnings Ratio                    121.77
• Price/ Book Ratio                          1.6
• 52-week Performance                  +44.41%
• 12-week Performance                  +8.58%
• YTD Daily Total Return                 13.23%
• Yield                                             1.73%
• Expense Ratio (net)                      0.11%
• Net Assets                                    11.24B
• Number of Holdings                      4,098
• Top Countries                               Canada, Japan, U.K.

SPDR S&P Emerging Markets Small Cap ETF (EXW) offers exposure to small cap stocks in emerging markets, an asset class that is generally overlooked by most emerging markets funds.  While EWX can potentially be a substitute for  ETFs such as VWO and EEM, which are dominated by large cap stocks, it is perhaps more appropriately seen as a complementary holdings to deliver well rounded emerging markets exposure. 

EWX is relatively efficient from a cost perspective, and extremely well balanced in terms of individual securities sectors, and countries (no one stock accounts for more than 1% of assets).  The only potential drawback worth noting is the inclusion of “quasi-developed” markets, which make up a material portion of holdings. 

 SPDR S&P Emerging Markets Small Cap ETF (EWX) 

• Weighted Average Market Cap    $1.59B
• Price/ Earnings Ratio                    44.99
• Price/ Book Ratio                          1.57
• 52-week Performance                  +53.15%
• 12-week Performance                  +9.71%
• YTD Daily Total Return                 15.78%
• Yield                                              1.97%
• Expense Ratio (net)                      0.65%
• Net Assets                                    630.47M
• Number of Holdings                      2104
• Top Countries                               Taiwan, India, Hong Kong

ERShares International Entrepreneur ETF (ERSX) selects the most entrepreneurial, primarily Non-US Small Cap companies.  Stocks included in the fund must meet the thresholds embedded in their proprietary Entrepreneur Factor (EF).  ERShares’ EF delivers strong performance across a variety of investment strategies without disrupting investors’ underlying risk profile metrics. Their geographic diversity enables them to harness global advantages through additional returns associated with currency fluctuations, strategic geographic allocations, comparative trade imbalances and relative supply/demand strengths.

In addition to evaluating 55,000+ global public companies for entrepreneurial characteristics, ERShares exploits state-of-the-art machine learning techniques to develop a more sophisticated assessment of targeted investments.  The net result helps them maintain an edge in delivering their one-of-a-kind, proprietary, alpha-generating, Entrepreneur Factor (EF).

Portfolio constituents include world-class entrepreneurs who drive disruptive innovation and wealth creation in emerging growth companies.  Leadership cohorts often include relatively unknown international entrepreneurs who represent the next generation of exceptional global leaders. 

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ERShares International Entrepreneur ETF (ERSX)

• Weighted Average Market Cap    $11.60B
• Price/ Earnings Ratio                    485.33
• Price/ Book Ratio                          5.23
• 52-week Performance                  +36.78%
• 12-week Performance                  -10.06%
• YTD Daily Total Return                 0.26%
• Yield                                              0.49%
• Expense Ratio (net)                      0.75%
• Net Assets                                    43.19M
• Number of Holdings                      46
• Top Countries                               Hong Kong, U.S., Australia

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