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Now that the domestic small-cap space has been well-covered by exchange traded funds, providers are setting their sights on more distant lands. What has suddenly become so appealing about this heretofore unrepresented asset class?

ETF issuers are leaning toward ETFs with small-cap country exposure for a couple of key reasons:

  • Domestic growth is expected to lag behind that of emerging markets
  • Large-caps in both emerging and developed markets correlate closely with the struggling global economy

Stacy Schultz for Financial Planning reports that Market Vectors’ launch of the Market Vectors Brazil Small-Cap (NYSEARCA:BRF) brought new attention to the asset class by capitalizing on the growth of Brazil’s consumers.

A number of smaller countries have a few very large names on their stock exchanges that either tend to be utility companies, a large bank or a global titan. These compete on a global level, so they are going to be large-cap and not give you pure exposure to that domestic economy. Small-caps, on the other hand, give investors exposure to the big growth areas that populate emerging and developed markets.

Don’t forget, too, that small-caps historically outperform in periods of economic recovery. They tend to perform even better out of nasty downturns, and this downturn was about as nasty as it gets.

Source: New ETF Trend: International Small-Caps