Investors wanting to give their portfolio a lift may want to consider %Foreign small-cap stocks.
International stocks, particularly those in Europe, are on a tear this year and so too are small-cap stocks of companies based outside the U.S.
Consider that the Vanguard FTSE All World ex-U.S. Small-Cap (VSS) exchange-traded fund is up 14% this year compared to a 2% gain for the benchmark S&P 500 index.
Analysts say foreign small-cap stocks are performing particularly well this year because many are not as susceptible to ongoing trade wars and geopolitical instability as large-cap stocks.
Most small European and Asian companies are domestically oriented, selling products in local communities or regionally with little foreign exposure.
Analysts stress that foreign small-cap stocks offer a unique diversification opportunity to investors in a period of heightened market uncertainty.
Many small overseas companies also have dominant positions in their local markets and a strong competitive advantage.
So, what type of foreign small-cap stocks will investors find in an ETF like the Vanguard FTSE All World ex-U.S. Small-Cap?
Stocks include everything from Hungary’s wireless telecommunications oligopoly Magyar Telekom (IDX: MTEL) to Irish cider manufacturer C&C Group (LON: CCR).
There’s also Japan Elevator Service Holdings (TYO: 6544), Japan’s largest elevator maintenance company, and German home-improvement retailer Hornbach Holding (ETR: HBH).
Italian hot-water heater manufacturer Ariston Holding (BIT: ARIS) is another popular European small-cap stock found in many ETFs.
Investing in a U.S. denominated ETF also eliminates worries about currency fluctuations and trade when investing overseas, say analysts.
Foreign small-cap stocks also tend to be cheaper and have a more attractive valuation that large-cap equities, with the average price-to-earnings ratio below 15.
Analysts seem to agree that European stocks are likely to outperform their U.S. counterparts in the short-term.
They also agree that small-cap stocks can ride through the current market volatility without tariffs and international conflicts dragging them down.
