Leader #2: iShares MSCI EAFE Small-Cap ETF
The iShares MSCI EAFE Small-Cap ETF (SCZ), at a relatively cheap 0.4% in expenses, stands out because it emphasizes the dual reality that the Japanese market is on fire (up about 40% year-to-date) and that European markets are definitely on the rebound.
SCZ itself seeks to replicate the performance of the MSCI EAFE Small-Cap Index, a group of 1,323 small-cap stocks in 22 developed markets (excluding U.S. and Canada) including Japan, the U.K., Australia, Germany, France and 17 others. Japanese and U.K. stocks account for just less than half the portfolio’s weighting. If you believe in these two markets, this is an excellent fund to own.
Its turnover in the past year was 16%, which is quite low, meaning its portfolio turns completely about once every six years. Approximately 70% of the $2.8 billion in total net assets are invested in just four sectors: industrials, financials, consumer discretionary and materials.
In terms of performance, SCZ is up roughly 21% year-to-date, with the lion’s share of that gained in the past quarter. The fund also has bested the MSCI EAFE Index during the past five years, by 438 basis points on an annualized basis. According to Wall Street Journal’s ETF screener, SCZ was the third-best equity ETF (expense ratio 0.5% or under and at least five years old) during the past 13 weeks.
I’m usually not one to emphasize performance, but that’s impressive.