With both U.S. small-cap stocks and international stocks posting some of the strongest returns in the market, an obvious question begs to be asked … why not combine these themes and add exposure to international small-cap stocks right now?
There are, of course, major differences between U.S.-focused small-cap stocks and small caps domiciled in other countries. But let’s put that discussion aside for today and just look at performance to see if this idea is worth exploring.
Year to date, the S&P 600 Small-Cap Index ETF (IJR) is up 6.2%, well ahead of the flat performance of the S&P 500 and the -1.9% return of the Nasdaq.
Meanwhile, the iShares All Country World ex-US MSCI (ACWX) is up 8%. And the iShares MSCI Emerging Markets ex China ETF (EMXC) is up a whopping 14.5%.
Clearly, there is something going on with both small caps and international stocks. I’ve written extensively about why U.S. small caps are doing well; so, for today, I want to focus on why international stocks are performing and then run through some options for how you can get exposure through international small-cap ETFs.
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Why International Markets Are Outperforming
The “Sell America” trade that emerged in 2024 gained significant momentum through 2025 and into 2026. At its core, this trend reflects a bet that the extended era of American economic and market dominance is shifting.
Adding credibility to this view is a weak dollar, which is creating a currency tailwind for U.S. investors in international stocks. This is because favorable exchange rate movements enhance USD-denominated returns from overseas equities.
Also, valuation gaps between U.S. and international markets have become too wide to ignore. Overseas stock markets trade at significantly lower price-to-earnings ratios while still housing many high-quality companies. Emerging markets look especially appealing from a valuation perspective, and for some investors offer a compelling risk-reward profile as compared to stretched U.S. equity valuations.
Finally, geopolitical and policy shifts are redistributing global capital flows. One outcome is that there’s been an uptick in global capital rotating out of U.S. stocks and into European, Japanese, and emerging markets.
To be clear, I’m not suggesting we should all go out and sell out of American stocks entirely. However, it does make sense to consider tactical rebalancing to ramp up international exposure.
How To Gain Exposure to International Small-Cap Stocks
There are many ways to gain international exposure with individual stocks. But for many investors who don’t want to take on company-specific risk and deal with buying stocks on foreign exchanges, the easiest will be a diversified international small-cap ETF.
There are numerous options available. Here are six options I like that can get the job done.
Build International Exposure with Small-Cap ETFs: Six Ideas
iShares International Small-Cap Equity Multifactor ETF (ISCF)
This ex-U.S. developed-market ETF focuses on equities scored on quality, value, momentum and low volatility. It has $611 million in assets under management (AUM), launched in 2015 and has an expense ratio of 0.23%. It is heavily focused on APAC (38%), Europe (37%), and the Americas (18%), with significant sector exposure to financials (24%) and industrials (20%). The ISCF yields around 3.4%. The ETF is up 8.2% YTD.
iShares MSCI EAFE Small-Cap ETF (SCZ)
SCZ is a much more popular fund than the ISCF, as evidenced by having $14 billion in AUM. It’s also been around longer, having launched in 2007. The expense ratio is a little higher at 0.4%, and the dividend is a little lower, at 3.0%. Interestingly, the fund’s performance isn’t much different from that of the ISCF lately, having returned 8.4% YTD. Geographic exposure is a little different (though not much), with 47% in APAC, 33% in Europe and 14% in the Americas. The SCZ is heavy on financials (25%), industrials (18%) and materials (12.6%).
iShares MSCI Europe Small-Cap ETF (IEUS)
The IEUS has a YTD gain of 4.9%. As the name states, this is a Europe-focused fund (66% weight). The IEUS allocates 18% to the Americas and 9.9% toward APAC. Financials (26%) and industrials (22%) are the two biggest sector weights. The IEUS is not a hugely popular fund, with just $153 million in AUM. But it yields 3%, has been around since 2007 and its European focus may be just what some investors are looking for.
WisdomTree International SmallCap Dividend Fund (DLS)
WisdomTree’s DLS ETF isn’t the biggest small-cap fund out there, but it has $1 billion in AUM and has been around since 2006, so it’s relatively well-known. The dividend yield is a healthy 3.5%, and YTD performance of 8.9% is solid. Geographic exposure is heavy on APAC (43%) and Europe (38%), with financials (22%), industrials (20%) and materials (12%) the three highest sector weights.
Schwab Fundamental International Small Equity ETF (FNDC)
Schwab’s small-cap international funds are among the best-performing out there. The FNDC has returned 11% YTD, making it the best performer of this group in 2025. FNDC has $3 billion in AUM, and it offers a respectable dividend yield of 3.4%. Geographic and sector exposure is similar to the DLS from WisdomTree, though FNDC has a little more APAC (49%) and a little less Europe (27%). As the name suggests, the ETF has a fundamental focus. Firms with the right mix of adjusted sales, operational cash flow, dividends and buybacks are the focus.
Schwab International Small-Cap Equity ETF (SCHC)
Schwab’s SCHC ETF ditches the fundamental focus and simply covers the bottom 10% of the eligible universe of stocks in the FTSE Developed ex-US Index with market caps over $150 million. The lack of a fundamental screen hasn’t hurt much lately. The fund is up 10.3% YTD. It is larger than the FNDC in terms of AUM, which sits at $6 billion. Compared to the FNDC, European exposure is a bit higher (34%) and APAC a bit lower (36%). Again, sector exposure is heavy on financials (23%), industrials (18%) and materials (16%).
Which International Small-Cap ETF to Buy?
Any of the above small-cap ETFs should work for their intended purpose. My suggestion would be to diversify between two or three to capture different geographic tilts and investment philosophies. Be sure to mix in at least one with a dividend focus and one with a fundamental focus. Both should give some downside protection.
As always, be sure to average in.
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