The Vanguard FTSE All-World ex-US Small-Cap ETF (VSS) contains approximately 2,100 securities and will offer investors market coverage to a frequently overlooked area of the equity universe. According to the prospectus, the fund’s annual expense ratio is 0.38 percent.
VSS will compete with the SPDR S&P International ETF (GWX), which has around $254 million in assets. GWX follows an index of 4,000 small-cap stocks domiciled outside of the U.S. and charges annual expenses of 0.60 percent. GWX only contains market exposure to small-caps in developed countries, whereas VSS covers small-caps in both developed and emerging markets. In 2008, GWX declined by 16.71 percent.
WisdomTree Investments offers one international small-cap equity fund but with a dividend (DLS) bias. The fund was launched in mid-2006 and charges annual expenses of 0.38 percent.
“Many advisors are committed to providing international exposure within their clients’ portfolios, but until now a low-cost index option with developed and emerging market small-cap exposure was not available,” said Martha Papariello, principal, Vanguard Financial Advisor Services. “VSS serves as the ideal complement to Vanguard FTSE All-World ex-US ETF (VEU), which was introduced in March 2007 and holds mid- and large-cap securities.”
VSS will also offer an alternative for mutual fund investors. For example, the DFA International Small Cap Value Fund (DISVX) can only be purchased through a select group of investment advisors. VSS selects small-cap international stocks passively and subsequently weights them by market capitalization. The index is rebalanced semi-annually.
With a historically low correlation to U.S. small-cap stocks, international small-cap ETFs can further diversify a portfolio containing only domestic and international large- or mid-cap stocks.
Including the newly launched fund, Valley Forge, Pa.-based Vanguard currently manages 39 ETFs with $44 billion in assets.
Ron DeLegge is the San Diego-based editor of www.etfguide.com.