Europe Is the Place for Small-Cap Upside

Core Insights - The Federal Reserve's recent interest rate cut has positively impacted domestic small-cap stocks, but European small-cap stocks, particularly through the WisdomTree Europe SmallCap Dividend Fund (DFE), are showing stronger performance and potential for growth [1][2]. Performance of DFE - DFE has increased by 28% year-to-date as of September 24, outperforming major domestic small-cap indexes and achieving this with lower annualized volatility, indicating superior risk-adjusted returns [2][3]. - The fund's performance is supported by a resilient European economy, better-than-expected growth figures, and a series of interest rate cuts from the European Central Bank (ECB) [4]. Catalysts for Growth - The German government's announcement to invest €500 billion over 20 years in infrastructure, renewable energy, and healthcare is expected to benefit small-cap stocks, particularly those with high exposure to the industrial sector [6]. - DFE's status as a dividend ETF is significant, offering a distribution yield of 8.70%, which is more than double that of most European sovereign debt [6][7]. Dividend and Capitalization - Many small-cap companies within DFE are well-capitalized, allowing them to return cash to shareholders through dividends or share buybacks, with some companies offering dividend yields exceeding 10% without risk [7]. - DFE allocates over 41% of its weight to industrial and financial services stocks, positioning it well for growth in these sectors [7].