However, Wasif Latif, USAA Investments head of global multi-assets, argues that U.S. stocks may be overvalued in general after a multi-year run, so investors should diversify with overseas assets.
“When you look across the spectrum, U.S. equities are generally overvalued. European equities are undervalued on a relative basis, so we like Europe more than the U.S.,” Latiff told CNBC.
Consequently, investors who would like to combine the small-cap and Europe equity themes may look to relevant ETFs, including the WisdomTree Europe SmallCap Dividend Fund (NYSEArca: DFE), iShares MSCI Europe Small-Cap ETF (NasdaqGM: IEUS) and SPDR EURO STOXX Small Cap ETF (NYSEArca: SMEZ). DFE has a 14.9 price-to-earnings ratio, IEUS has a 17.3 P/E and SMEZ shows a 15.9 P/E. In contrast, the S&P 500 Index is trading at a 18.5 P/E.
Moreover, if you are concerned about a weakening euro currency, there are currency-hedged small-cap Europe ETF options available, including the WisdomTree Europe Hedged SmallCap Equity Fund (NYSEArca: EUSC) and iShares Currency Hedged MSCI Europe Small-Cap ETF (BATS: HEUS). Both EUSC and HEUS try to diminish the negative effects of a depreciating euro currency on returns. However, the two funds may underperform non-hedged ETFs if the euro strengthens.
For more information on small-capitalization stocks, visit our small-cap category.
Max Chen contributed to this article.