Looking at International Small-Cap ETFs

With domestic small-cap stocks and the related exchange traded funds flourishing, some investors may feel compelled to examine international equivalents. Well-known international small-cap ETFs include the iShares MSCI EAFE Small-Cap ETF (NASDAQ: SCZ).

SCZ rivals include the Vanguard FTSE All-World ex-US Small-Cap ETF (NYSEArca: VSS) and the Schwab International Small-Cap Equity ETF (NYSEArca: SCHC).

Earlier this year, Morningstar lowered its rating on SCZ to Neutral from Bronze while lowering VSS to Bronze from Silver. The research firm upped its rating on Schwab’s SCHC to Bronze from Neutral. VSS follows the FTSE Global Small Cap ex US Index and provides an easy way to gain broad exposure across developed and emerging market companies outside of the U.S.

SCHC also tracks the FTSE Developed Small Cap ex US Liquid Index while SCZ, the iShares ETF, follows the small-cap answer to the large-cap MSCI EAFE Index.

“These three funds also all have Positive Parent Pillar ratings. The Parent Pillar rating assesses the larger organization behind a fund, ensuring that fund sponsors are good stewards of investors’ money. It is important to hold funds from responsible organizations, but the Parent Pillar rating has a smaller impact on the Analyst Rating because the characteristics of the fund itself have a greater impact on future performance,” said Morningstar in recent note.

Looking To Rebound

Domestic small-cap stocks are surging this year. For example, the benchmark Russell 2000 Index is up nearly 14% year-to-date. However, international small-cap equities are lagging as highlighted by the fact that each of SCHC, SCZ and VSS are lower year-to-date. VSS is the worst-performing member of the trio with a 2018 loss of 3.1%.