A Small-Cap Opportunity in Europe

European equities have been drubbed alongside other developed markets this year and that includes the region’s small-cap names. For instance, the WisdomTree Europe SmallCap Dividend Fund (NYSEArca: DFE) entered Wednesday with a year-to-date loss of more than 21%.

While Europe-related exchange traded funds are struggling this year, compelling valuations throughout the region and robust dividend profiles could make ETFs like DFE credible options for investors seeking some international portfolio diversification in 2019.

“While some investors may have a dedicated European large-cap exposure in their global portfolios, far fewer most likely have dedicated exposure to European small-caps,” said WisdomTree in a recent note. “This could be a costly mistake. In the European market, there is a significant difference between large- and small-cap companies in terms of where they derive their revenue from, geographically.”

DFE ETF Details

DFE, home to nearly $800 million in assets under management, debuted 12 and a half years ago. The fund holds over 400 stocks and has a dividend yield of just over 3%, well above what is found on traditional domestic small-cap benchmarks.

European small-cap strategies “also provide different exposure across sectors. We believe a blend of large- and small-caps can offer a unique complement, particularly when currency volatility is mitigated with a 50% currency-hedged baseline as discussed in a recent post,” according to WisdomTree.