Go global with emerging small caps
"Investors should consider some small cap diversification for their overall portfolios," suggests ETF specialist Carl Delfeld. In his Chartwell ETF Advisor, he looks at two global small cap ETFs.
"Emerging markets small caps come with a bit more risk and volatility than large caps, but the upside potential is more than commensurate than the risk in my view.
"In addition, piling into a few emerging small caps is rolling the dice. Buying into a basket of 300 companies spread amongst a variety of markets is a smarter play. You have a couple of good choices.
"WisdomTree Emerging Markets Small Cap Dividend Fund (NYSE: DGS), true to the issuers mission statement, follows an index of companies that are weighted based on annual cash dividends paid.
"Still, of the ETFs 377 holdings, only 15% are in financial stocks. This is usually not the case for high yielding exchange traded funds.
"Top sector allocation goes to industrials (22%) and information technology (20%). The fund is Taiwan-heavy, at nearly 32% of assets, but gives ample exposure to other nations such as South Africa, Turkey, Israel and Chile. China and Brazil are the only two BRIC nations in the top ten in terms of country weightings.
"Another option is the market cap size weighted index, the SPDR S&P Emerging Markets Small Cap (NYSE: EWX) that provides access to 279 different small caps.
"The fund, again, is Taiwan-heavy, but gives more BRIC exposure with China, Brazil and India rounding out the top five country weightings. The yield is paltry at 0.72%, and annual expenses run comparable with the WisdomTree fund at 0.65%.
"Often times, the small caps as a group trade at a valuation discount to their better known big cap brothers despite their higher potential for growth.
"Both of these ETFs would work but I tend to favor DGS because I like the sector weighting better as well as the higher dividend yield."
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