Market participants in the U.S., broadly speaking, already perceive international equities as being more volatile than domestic equivalents. They also believe that scenario is amplified with smaller stocks.
That’s not always the case. The WisdomTree International SmallCap Dividend Fund (DLS) proves as much. Over the past three years, the $1.06 billion DLS sported annualized volatility of 14.3%, well below the 20.8% average seen on the Russell 2000 and the S&P SmallCap 600 indexes. Investors didn’t sacrifice returns to get that volatility advantage. Over those three years, DLS gained 62.4%, beating both of the domestic small-cap gauges.
The favorable volatility traits and impressive returns are obviously noteworthy, but there are other reasons to consider DLS. Here are some to chew on.
Drilling Down on International Equities’ Advantages
Investors embrace international equities, to diversify portfolios that were previously heavily tilted to domestic stocks. DLS has the potential to deliver on the promise of diversification.
“Importantly, this higher return potential has not come at the cost of diversification,” noted Voya Investment Management. “International small caps have shown similar correlations to U.S. large cap stocks as international large caps, meaning they have provided comparable diversification benefits within global equity portfolios.”
DLS is diverse. It holds more than 1,000 stocks. None of these which command an allocation in excess of 0.78%; concentration risk isn’t an issue with this ETF. Another point in favor of the WisdomTree fund is the point that the size premium has proven more durable over the long-term outside of the U.S.
“Over long periods, international small caps have generated positive excess returns relative to international large caps, while the same comparison in the U.S. has been less favorable for small companies,” adds Voya.
Adding to the allure of DLS are the points that international small-caps, broadly speaking, are more profitable than domestic peers while offering credible value.
“International small‑company stocks are cheap compared with the past. Compared with large international companies, small international companies are trading at lower-than-average prices,” concludes Voya. “This means investors are paying less for each dollar of earnings from smaller international companies than they typically have, and less than they pay for larger companies.”
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This article was prepared as part of WisdomTree’s general paid sponsorship of VettaFi | ETF Trends. This specific content within and any opinions expressed therein belong solely to VettaFi and do not reflect the opinion or analysis of WisdomTree, its employees, or its affiliates. Content published on VettaFi | ETF Trends is provided for educational purposes only and should not be considered investment or tax advice. For investment or tax advice, please consult a financial professional.
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