Smart-beta index exchange traded funds have helped investors capture attractive returns in the European equities market.
As European economies move out of a recession and back into growth, smart-beta European ETFs with a heavier tilt toward smaller companies has outperformed traditional beta-index ETFs. [European ETFs Strengthen But Watch Out For Trouble Spots]
For example, the WisdomTree Europe SmallCap Dividend Fund (NYSEArca: DFE) is up 8.0%, First Trust Europe AlphaDEX Fund (NYSEArca: FEP) gained 6.7% and First Trust STOXX European Select Dividend Index Fund (NYSEArca: FDD) increased 8.9% year-to-date. [First Trust Eyes Europe Expansion]
In comparison, the traditional market-cap weighted Vanguard FTSE Europe ETF (NYSEArca: VGK) is 4.1% higher year-to-date.
“As the markets emerge from a recession, smaller and mid-cap stocks do better as they’re more tied in with the local economies,” Todd Rosenbluth, director of ETF and mutual fund research at S&P Capital IQ, said in a Reuters article.
Rules-based, factor-based, intelligent, enhanced, fundamental or smart-beta index ETFs employ screening techniques that select companies with specific qualities. For instance, the ETFs may screen for factors like dividend yield, sales growth or stock price momentum, among others.
Consequently, the screens make these ETFs lean toward small- and mid-capitalization names.