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.
Deep Basket of Developed International Names for Sector and Geographic Diversification
The SPDR S&P International Small Cap ETF (NYSEARCA: GWX) follows an index of non-U.S. firms with market capitalizations between $100 million and $2 billion. It focuses on stocks from developed countries, with Japan, South Korea, Canada, and Australia at the top of the list. The fund's biggest allocation is toward industrial names at roughly 22%, followed by information technology, materials, and consumer discretionary stocks.
GWX's appeal lies in its broad approach to international stocks that are outside of the traditional mega-cap space. By targeting firms outside of popular sectors among investors looking toward international equities (energy, financials), GWX can help to balance out international exposure or lean away from a reliance on domestic positions.
The highly diversified basket includes more than 2,000 different stocks, with no holding representing more than about a third of a percent of the portfolio. With that breadth, GWX also provides a strong dividend yield of 2.5% as another way of enticing investors.
With a 1-year return of 25%, the moderate expense ratio of 0.40% may be justified, even if GWX has been a bit slower to distinguish itself in 2026, based on about 12% in year-to-date (YTD) returns.
Excellent Dividend Heightens Appeal of PDN
Targeting a similar universe of stocks as GWX but with a focus on companies ranked by book value, cash flow, sales, and dividends, the Invesco RAFI Developed Markets ex-U.S. Small-Mid ETF (NYSEARCA: PDN) comes in slightly more expensive than its rival. PDN's expense ratio of 0.47% is somewhat higher than GWX's, but the potential benefits of a portfolio constructed using these other factors rather than market capitalization weightings might make the extra cost worthwhile.
In terms of performance over the last year, however, PDN is roughly on par with GWX at about 20% in returns over the last year and 10% YTD. Its portfolio is also slightly smaller, with around 1,600 positions leaning most heavily on industrials, financials, and materials stocks from Japan, Canada, South Korea, and the U.K., among others.
One area in which PDN really stands out, however, is with its distributions. The fund offers a dividend yield of 3.1%, which some investors may feel more than makes up for its recent slight underperformance relative to a rival like GWX.
A Modest Trade-Off of Returns for a Stronger Dividend Yield
Investors with a particular interest in dividend-paying small caps might consider the WisdomTree International SmallCap Dividend ETF (NYSEARCA: DLS), which focuses on developed markets outside the United States and Canada. While small-cap names are not necessarily known for paying dividends, a fund like DLS that looks for those that distribute may help investors balance growth and income.
Although DLS has the narrowest portfolio of any of the three funds here, with more than 1,000 holdings it is still plenty broad for many investors. And while DLS comes in with the least impressive performance of these three ETFs, returning about 7% YTD and 17% in the last 12 months, its dividend yield of 3.5% is also the strongest.
For investors, the appeal of DLS may be in that it builds a dividend play with stocks that are most commonly not found in other dividend strategies, owing both to their size and their international status. This can help to not only boost passive income but also help to protect a dividend-focused portfolio with its diversification.
On the other hand, investors will have to pay a premium for this option, as DLS comes with an annual fee of 0.58%.
The article "3 ETFs Giving Ready-Made Access to the Discounted International Small-Cap Space" first appeared on MarketBeat.
