The international small-cap equities space may be one of the most overlooked value prospects available to investors right now. In the last two years, the MSXI EAFE Small Cap Index—focused on developed nation small-cap stocks outside of the United States and Canada—has seen some of its lowest valuations relative to domestic large-cap names in decades. At the same time, ex-United States developed market stocks are quietly outperforming the U.S. market in recent quarters.
The combination means that investors may still have an opportunity to catch international small-cap firms before they lose their value appeal and while there is still momentum to ride. Of course, many retail investors won't consider these names or may not even be aware of them, given their lack of name recognition in the United States. However, a group of dedicated exchange-traded funds (ETFs) can add valuable international small-cap diversification to a variety of different portfolio approaches.
