The Federal Reserve's recent interest rate cut delivered some much needed relief for domestic small-cap stocks. Still, advisors and investors looking for legitimate small-cap leadership may want to get their investing passports ready, because Europe beckons.
FDD and EFAS surged over 30% in H1 2025 as investors turned to global dividend ETFs amid U.S. market volatility.
ETFs like EUAD and FEP are rallying as cooling inflation and ECB rate cuts boost Europe's market appeal over the United States.
European equities and related ETFs are among the leading Q1 trades, powered significantly by large-caps. That's the result of investors embracing European industrials amid expectations countries there will largely boost defense spending.
US Small-Cap stocks, particularly the iShares Core S&P Small-Cap ETF, are a better long-term choice compared to the WisdomTree Europe SmallCap Dividend Fund (DFE). DFE also underperforms against the iShares Core MSCI Europe ETF, making it less attractive for investors seeking European small-cap exposure. The performance gap widens further when considering ETFs that hedge currency risk, reinforcing the Sell rating for DFE.
Helped by the Federal Reserve's September interest rate cut of 50 basis points, domestic small-cap stocks and the related exchange traded funds caught a bid. For example, the Russell 2000 Index is higher by 1.47% over the past month.