For one trading day at least it looks as if the January Effect,
the scenario under which small-caps lead an early-year market
rally, is working.
With a Wednesday gain of almost three percent on volume that was
well above double the daily average, the iShares Russell 2000 Index
) surged to a new-all time high.
That should give fans of the January Effect something to brag
about. When including Wednesday's gain, the $15.9 billion ETF has
jumped almost six percent in the past month.
So it looks like U.S. small-caps are off to a fine start in
2013. If that becomes a prevailing trend, investors may want to add
some international small-cap exposure to their portfolios as well.
As has been noted,
some of the small-cap ETFs
tracking BRIC nations outperformed their large-cap counterparts in
If risk appetite is truly being renewed, select international
small-cap funds should offer valid complements or alternatives to
U.S.-focused equivalents. Here are some sound ideas.
WisdomTree Europe SmallCap Dividend Fund (NYSE:
) Coming off a year in which it surged almost 22 percent, the
WisdomTree Europe SmallCap Dividend Fund could be in for another
big year as late-comers embrace compelling valuations for European
equities. The Stoxx 600 Index ended 2012 trading at just 11.4 times
2013's estimated earnings,
according to Bloomberg
Adding to the good news is another Bloomberg report that notes
the Euro Stoxx 50 Index
may rally as much as eight percent this month
DFE allocates over 35 percent of its combined weight to
discretionary and financial services names, putting the ETF in
position to soar in a risk on environment. Noteworthy is the fact
that London's FTSE 100 surged above 6,000 today and DFE features a
weight of 24.4 percent to the U.K. Investors are also compensated
for taking on the risk of European small-caps by DFE, which
features a 30-day SEC yield of four percent.
Market Vectors Germany Small-Cap ETF (NYSE:
) GERJ will turn two years old in April, but an assets under
management total of just $4.5 million indicates investors have not
yet warmed to this ETF. That is a shame because GERJ soared almost
26 percent last year, outperforming the larger iShares MSCI Germany
Index Fund (NYSE:
) along the way.
After a strong 2012 for German equities, some
analysts are taking a more cautious approach
to the Eurozone's largest economy this year.
However, if German stocks come even remotely close to delivering
an encore in 2013, GERJ may prove to be the better bet once again.
On a valuation basis at least, GERJ looks more attractive here. The
fund has a P/E ratio of 11.24 and a price-to-book ratio of 1.43,
according to Market Vectors data
. That compares with EWG's P/E of 18.23 and a price-to-book
ratio of 2.19
WisdomTree Emerging Markets SmallCap Dividend Fund (NYSE:
) For those that do not want to make a country-specific bet on
emerging markets small-caps, the WisdomTree Emerging Markets
SmallCap Dividend Fund offers perhaps the best alternative for
eschewing single country risk while still capturing small-cap
exposure in the developing world.
At the top, the fund is somewhat conservative with Taiwan and
South Korea combining for about 33.6 percent of the fund's weight.
The subsequent country weights are also of importance to investors.
With Thailand, Malaysia and Turkey combing for almost 26 percent of
the ETF's weight, DGS stands as arguably the best avenue for
getting small-cap exposure in those nations.
Additionally, DGS is another attractively valued ETF. At the end
of the third quarter, DGS had a P/E ratio of about 13 and a
price-to-book ratio of just over one,
according to WisdomTree data
. Even if those numbers have come up since the end of that quarter,
they probably have not risen dramatically enough to touch IWM's P/E
of 25.22 and its
price-to-book ratio of 3.1
For more on
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