Small-Cap Foreign ETFs Garnering Attention

November 12th at 6:00am by Tom Lydon

ETF small cap

A foreign small-cap fund that isn’t an index mutual fund or exchange traded fund (ETF) has recently reopened its doors to new investors, but how does it stack up against ETF rivals?

The Vanguard International Explorer Fund (VINEX) is an actively managed mutual fund that has been closed to new investors since 2004.

With its reopening, though, there will hopefully be more lower-cost choices in small-cap international stock funds, according to Murray Coleman of Index Universe. VINEX is down 47.4% year-to-date.

ETF Vinex chart

The current expense ratio of VINEX is 0.35% a year, which beats all current broadly diversified ETF and index fund contenders.

The iShares MSCI EAFE Small Cap Index (SCZ), with an expense ratio of 0.40%, offers a low-cost alternative but it does not prvoide emerging markets exposure. SCZ is down 48.9% year-to-date.

ETF SCZ chart

Five funds compete with one another directly with broadly diversified portfolios, but there are a total of 11 different ETFs that target more specialized or niche markets.

There are some caveats to small-cap international stock funds. VINEX requires initial investments of $25,000 and charges 2% redemption fees on assets held less than two months. But whale investors of $100,000 or more face fewer restrictions on minimum asset levels.

VINEX has a turnover rate of 45% with around 200 stocks and SZC at 15% with 600+ stocks.

WisdomTree International SmallCap Dividend FUnd (DLS) was the first to market broad-based and highly diversified ETFs. It cited that dividened-based funds were different than traditional market cap-weighted ETFs in explaining its pricing structures. DLS is down 45.5% year-to-date and charges an expense ratio of 0.58%.

ETF DLS chart

Index returns have varied in the group by 4%. Over the long-term, DLS, the best-performing ETF in the last five years, outperformed SCZ by 2%.

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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