International small caps can, in many cases, offer even more benefits than their U.S. counterparts, but stock picking in this arena is exceedingly difficult. The ERShares International Equity ETF (NYSEARCA: ERSX) eases that burden and is becoming a star in its category.
Small cap investors already know that looking at equities outside the large cap universe can yield substantial gains, but one area they may not have considered is looking abroad—as such, investors should also consider international small cap exposure.
“One of the benefits associated with foreign small-cap stocks is their ability to better diversify a portfolio of U.S. stocks,” said Morningstar. “They tend to have slightly lower correlations with U.S. stocks than large-caps listed overseas.”
International, Small-Cap, and Bullish
Bullishness for small-caps has not been confined to U.S. borders, indicating that investors should consider international small-cap exchange traded funds, some of which have delivered impressive returns this year. Still, international small-caps come with unique risks that have kept many investors at bay.
“ERSX is now ranked #1 in its category for the past 1 year. We continue to remain optimistic for Entrepreneurial (Disruptor/Innovator) companies going forward—especially in the International Small Cap and HealthCare categories,” according to EntrepreneurShares.
Small-cap companies are nimble and typically react faster during the initial stages of economic growth. With international small-caps, investors can also diversify with potentially more compelling valuations.
“We believe our markets may now be experiencing an Intermarket Reversion with stocks reverting to historical patterns. Over the past 12 years, US Tech stocks have appreciated close to 500% while the Shanghai Exchange has dropped 25% during the same time. We believe this unusual period of consistent, extensive dominance may fade in the near future,” notes EntrepreneurShares.
With its focus on healthcare and technology names, among others, ERSX offers investors a growth purview at a time when small-cap value is lagging. Plus, the fund can benefit from some defensive positioning and a weaker dollar.
“Supporting this argument we note that Price-to-Earnings ratios and other valuation metrics in International (Small Cap) equities, are now about 1/3 of their US counterparts. Moreover, in the past two months many investors have been reducing exposure to US political risk and have been pouring money into international equity ETFs ($20B). All of these factors, coupled with the sliding US dollar, make International equities and the defensive HealthCare sector, attractive at this time,” according to ERSX’s issuer.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
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