In the past few years one of the primary trends for investors was to internationalize their portfolios. A growing list of ETFs also made this possible and easier. Doing so was believed to provide more diversification and at the same time add exposure to economies with superior growth prospects. From a performance perspective this proved rewarding until global markets, particularly debt ridden eurozone economies, suffered serious declines.
Small-cap sectors have always exhibited the highest volatility (beta) characteristics as markets trended higher or lower. When markets trend higher outperformance is generally exhibited and the opposite occurs as trends reverse. The latter held true in 2011 as markets declined and investors halted fund flow reversing course.