Is it time to invest abroad? U.S. equities remain an expensive proposition, even with the Magnificent Seven a key player in many portfolios. Outside of owning those seven firms, where might investors want to go? Foreign equities could offer some exciting upside with the right approach. A small-cap dividend ETF like DGS invests in emerging markets with that small-cap dividend screen.
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Why look to emerging markets specifically? Emerging markets already got through much of their own central bank responses to inflation last year. With the U.S. still digesting the back end of inflation via high rates, those markets could appeal by comparison. What’s more, emerging markets are also benefitting from an ongoing supply chain shift following lessons learned in the pandemic and amid fears of worsening U.S.-China trade strife.
Specifically, a small-cap dividend ETF like DGS could provide a particularly appealing approach. The WisdomTree Emerging Markets SmallCap Dividend Fund (DGS) tracks the WisdomTree Emerging Markets SmallCap Dividend Index. In doing so, its focus on small caps not only offers exposure to firms that may be more specifically exposed to their given country but also companies that could be set for significant upside.
Perhaps most importantly, a small-cap dividend ETF’s search for dividend-paying small companies can identify small companies with healthy balance sheets that can pay dividends. Especially abroad, dividend payments can be a key signal for investors and ETF managers.
DGS charges a 58 basis point (bps) fee to track its index. In doing so, it has returned 12% over the last three months, per VettaFi data. That has outperformed both its ETF Database Category and Factset Segment Averages. Having added more than $200 million in flows over the last year, the small-cap dividend ETF may be worth watching.
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