Europe’s SMEs, firms with less than 250 employees, represent a workforce of 88 million people and make up two-thirds of private-sector employment, according to the Economist.

SMEs have less assets, smaller retained earnings, fewer customers than large corporations, and they can’t spread risk by diversifying product lines or expanding to different locations. These small businesses are also experiencing dwindling demand and shortage of bank credit, but governments are starting to order banks to lend to them, provide credit guarantees, suspend some taxes and force public bodies to pay up faster.

In a recent survey, a little more than half of 804 French SMEs expect revenues to remain the same or increase in 2009.

German domestic consumption is keeping steady and it is helping to support home businesses while exporting firms are more troubled.

While in Britain, corporate liquidations increased to 4,941, up 56% year-over-year, in the first quarter and most of which were in SMEs. But a recent survey found 60% of businesses performing equivalent to or better than last year.

Small-caps in other countries aren’t that much different than they are in the United States, in that their small size makes them especially nimble and better able to adapt to changing conditions.

• SPDR S&P International Small Cap (GWX): up 10.4% year-to-date; Western Europe is 34.1%

• WisdomTree International SmallCap Div (DLS): up 7.9% year-to-date; Western Europe is 42.2%

Max Chen contributed to this article.

Assets: $276 million

Top three holdings:

• Nexity, 0.8%
• Vector Limited, 0.7%
• Provident Financial, 0.7%

Top country weightings:

• United Kingdom, 42.2%
• Japan, 33.8%
• Asia ex-Japan, 23.2%

Sector breakdown:

• Industrials, 23.6%
• Consumer Discretionary, 22.2%
• Financial, 15.4%

Objective: DLS is designed to track the performance of the WisdomTree International SmallCap Dividend Index, and attempts to invest all (or substantially all) of its assets in stocks that make up the index. The index measures the small-cap segment of the dividend-paying market in the industrialized world (minus the United States and Canada). The index is made up of the bottom 25% of the market cap of the WisdomTree DEFA Index.

What to note:

• DLS currently comes with a 6.4% yield and is diversified, with 721 components
• It’s up 5.3% year-to-date
• It comes with a 0.58% expense ratio

Recent news:

In the last three months, small-cap stocks have been surving on worries that the financial sector is still unstable. Small-caps carry a market cap anywhere from $300 million to $2 billion, and are among the more volatile investments. In the wake of the financial crisis, investors are diversifying themselves among small-caps instead of relying on the just one sector in that asset class.

History typically suggests that small-caps lead the gains in the inital movement of stocks at the beginning of nearly every economic recovery. But since little about this market has been “typical,” it’s best to wait for the trend lines to show themselves first.

Smaller European companies shrank 6.8%, mid-sized companies diminished 8%, and big-caps dropped 12% on a year-to-date basis, reports Barbara Kollmeyer for MarketWatch. Now, investors face bargain prices in small-cap stocks with stocks trading around a 20% discount to European large*caps.

But small-cap performance has not inspired the hearts of investors as of late. Some look to large-caps with their abundant capital, cash flow, and resilience in downturns. Smaller companies tend to rely on the whims of banks and they have exposure to smaller European markets.

J.P. Morgan analysts continue to believe in positive returns on small- and mid-cap stocks this year, but they anticipate lower performance compared to large-caps during the recovery this time around.

While some see the benefits of large-caps, some think the smaller companies are at an advantage in specializing and providing for a niche market. Value in small caps of Europe can be seen as a result of cash flows out of international funds and in managers of small companies who keep good balance sheets.

• There are small-cap stocks that are financially stable and are able to pay out dividends as a result of good business. WisdomTree Europe SmallCap Dividend (DFE): down 9.6% year-to-date; up 6.9% in the last month

• WisdomTree International SmallCap Div (DLS): down 11.3% year-to-date; up 11.2% in the last month

Max Chen contributed to this article.

In turbulent times, the conservative investors tends to turn to a safe zone, in particularly, dividend-focused exchange traded funds (ETFs).

Dividend-focused ETFs are great in that they enable your money work for you on its own while enabling investors to gain access to various markets and sectors.  One may wonder how to chose a stable dividend ETF. After all, at the end of 2008 there were 14 different such ETFs to chose from.

Here are some things to consider when choosing a dividend ETF:

• Pick ETFs that hold stocks with nice, sustainable dividend yields
• Focus on ETFs that hold stocks with a history of paying out dividends and are hoarding enough cash to cover the current payout, states John Spence of Market Watch.
• Be mindful of ETFs that are heavily concentrated on a single sector which may be in trouble. For example, financials. After all, when earnings fall, dividends do, too.
• Know exactly what stocks your ETF holds and how concentrated these holdings are.

As uncertainty and volatility continue to overshadow the market, investors will continue to look for ways to moderate the risk of their portfolios, making dividend ETFs attractive.  We may sound like a broken record, but do your homework, assess your appetite for risk and know what your overall financial goals are when choosing the right ETF for your portfolio.

Some ETFs to consider are:

First Trust Value Line Dividend Index (FVD): down 6.8% over the last month and generating a yield of 4.2%

WisdomTree International SmallCap Dividend (DLS): down 8.9% over the past month and generating a yield of 6.5%

This index enables Vanguard to offer its clients access to the most investable areas of what potentially could be a highly illiquid overseas marketplace.  It also enables the provider to remain competitive and try to grab attention and market share from small-cap international ETFs that are already established, such as the International Small Cap Dividend Fund (DLS), iShares MSCI EAFE Small-Cap Index Fund (SCZ), the SPDR S&P International Small-Cap Fund (GWX), and the FTSE Developed Ex-US Small Cap ETF (IFSM), states Murray Coleman of Index Universe.

Vanguard has a good advantage in the industry, in that, last month, it introduced its long-closed International Explorer Fund (VINEX), which had an expense ratio of 0.35%, making it the cheapest mutual fund in its category and making an actively managed fund the least expensive option for retail investors when matched against corresponding ETFs.

As for the Vanguard FTSE All-World ex-US Small-Cap Index Funds, investor shares will require at least $3,000 with an expense ratio of 0.60% and institutional shares will require $5 million and charge 0.35% in expenses.  As for the ETF version, the expense ratio will be 0.38%, making it competitive with BGI’s version, but more costly than IFSM.

This new index will provide a good alternative and open up options for traditional index mutual fund investors.

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.

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.

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%.

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%.