Emerging Market Small Cap ETFs Show Promising Growth as Investors Look to Diversify

05/05/2011 Share 0 comments

As the international economy has become more intertwined, many investors have sought out exposure to a wider range of geographic markets. Emerging Market Small Cap ETFs provide investors access to growing companies in the world's growing economies. While emerging market investments come with inherent risks, they also come with more upside potential, as companies in these markets often have more room for growth than firms in more developed nations.

In recent periods, capital inflows to developing economies have increased as investors move away from established economies that have encountered economic difficulty or low growth levels. This reallocation of capital has resulted in strong growth for ETFs that track Emerging Market Small-Cap Equities. Among these ETFs, the Wisdomtree Emerging Markets Small Cap ETF (DGS) has lead the way, returning 27.65% in the past year. Other high level performers include the Guggenheim Frontier Markets (FRN) and the SPDR S&P Emerging Markets Small Cap ETF (EWX), offering investors returns of 15.44% and 11.76% respectively.

Emerging Market Small Cap

4/29/2011

As mentioned, the most successful ETF in the class in the past year has been Wisdomtree's Emerging Markets Small Cap ETF (DGS). This ETF seeks to track the price and yield performance of the Wisdomtree Emerging Markets Small Cap Dividend Index and attempts to invest all of its assets in the stocks that make up the index. DGS is well diversified across numerous sectors. Below are the sectors making up over 10% of the total weighting for the Wisdomtree's Emerging Markets Small Cap ETF (DGS):

• Industrials (19.94%)
• Consumer Cyclical (19.11%)
• Technology (14.36%)
• Financial Services (12.72%)
• Basic Materials (10.43%)

With the continued growth of many emerging economies, a strong argument can be made for investors to have a dedicated portion of their portfolios invested in Emerging Market Small Cap ETFs. While these investments certainly come with risks, the potential reward should be enough to keep most investors on board.

Symbols: DGS, FRN, EWX

Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.