Foreign small cap exchange traded funds (ETFs) and stocks are offering investors an option to try and avoid the U.S. mortgage meltdown. Financials represent the largest sector in most small-cap value indexes. The average domestic small-cap value stock mutual fund is losing 5% or more this year. Compare that to its foreign counterpart, foreign small-cap value stock funds which on average has gained 7%-plus this year, reports Murray Coleman for

Foreign banks and financial-service markets are holding up better, however, illiquidity in credit markets and subprime loans are still showing up overseas. WisdomTree International Financial Fund (DRFis a good example, it is up 2.7% this year and domestic financial specialty funds are down more than 9% on average.

In the U.S. financials are dragging small-caps down, but the performance lag in foreign funds isn’t present. WisdomTree International Small-Cap Dividend Fund (DLS) is up 10.1% year-to-date and SPDR S&P International Small-Cap Fund (GWX) is up 1.4% since its April launch. Vanguard Small-Cap Value ETF (VBR) is down 3.2% year-to-date.

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