Small Caps, International Diversity Under One Umbrella

Investors looking for the allure combination of international small caps and diversification have an ally in the form of the ERShares International Entrepreneur ETF (ERSX).

ERSX selects the most entrepreneurial, primarily Non-US Small Cap companies, that 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.

With valuations compelling, there are multiple reasons why ERSX is attractive in the current environment.

“Adding international exposure is one of the first steps toward a diversified portfolio. Even minimalist investors usually carve out a portion of their portfolios for non-U.S. stocks after adding exposure to domestic stocks and bonds,” writes Morningstar analyst Amy Arnott. “International stocks are subject to myriad factors that can lead to divergent performance, including local market conditions, currency movements, exposure to different sectors and industries, and political and economic factors. These traits mean they often show different performance patterns--both relative to the U.S. market and versus other international markets.”

ERSX a Meaningful Diversification Tool

Investors can still enhance their portfolios as the bull market extends with growth-oriented stocks that continue to perform despite the recent bouts with volatility. Growth stocks are often associated with high-quality, prosperous companies whose earnings are expected to continue increasing at an above-average rate relative to the market. Growth stocks generally have high price-to-earnings (P/E) ratios and high price-to-book ratios. Still, data suggest the growth/value premium isn’t overly elevated relative to historical norms.

Diversification is increasingly important when considering the state of international equity correlations to other markets, including the U.S.

“With the novel coronavirus pandemic affecting economies, companies, industries, and people on a global scale, most major international markets dropped at least as much as the U.S. market in early 2020,” notes Arnott. “Japan was the only major regional market to maintain a lower correlation with the United States. It also suffered lighter losses than most other global markets.”

ERShares uses a deep factor-based approach to unearth opportunities with international small cap names.

“We incorporate a proprietary investment model which applies a global, bottom-up, and top-down filtering process. Our ‘entrepreneur’ factors utilize both qualitative and quantitative criteria,” according to ERShares. “We apply our criteria to identify publicly traded entrepreneurial companies. History has shown that our model is effective across different market caps and geographical locations. We focus on management and leadership.”

For more investing ideas, visit our Entrepreneur ETF Channel.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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