Investors are clamoring for foreign equities investments. Foreign equities ETFs performed very well in 2025, and many market outlooks see potential for strong repeat performance in 2026. It may not be straightforward, however, especially for simple, passive, market cap-weighted foreign equities ETFs. By adding one particular wrinkle, certain foreign equities ETFs may be able to provide that stellar foreign equities performance investors are looking for. See more: 3 Stocks Driving Emerging Markets ETF AVXC's ...

Core Viewpoint - The resurgence of small-cap stocks and related ETFs, particularly those with value stock exposure, is a significant theme in early 2026, with small-cap stocks outperforming the large-cap S&P 500 year-to-date [1]. Group 1: Small-Cap Stocks and ETFs - The O'Shares U.S. Small-Cap Quality Dividend ETF (OUSM), valued at $932.82 million, has increased by 3.3% year-to-date, indicating strong performance among small-cap ETFs [1]. - OUSM is appealing for equity income investors seeking small-cap exposure, as traditional ETFs in this category often have low yields and limited potential for dividend growth [2]. - Small-value portfolios focus on small US companies with lower valuations and growth rates compared to their peers, defined as stocks in the bottom 10% of the US equity market capitalization [3]. Group 2: Market Sentiment and Economic Factors - There is a growing sentiment among professional investors that market breadth is widening, leading to increased interest in smaller stocks as potential winners outside the mega-cap growth sector [5]. - Factors supporting small-cap performance include expectations of continued interest rate cuts by the Federal Reserve and a potentially stronger-than-expected U.S. economic expansion [6]. - Geopolitical events, such as the ousting of Venezuelan President Nicolás Maduro and investigations involving Federal Reserve Chair Jerome Powell, are expected to stimulate broader market investment in 2026 [7].

Core Viewpoint - Small-cap value has historically been a strong investment strategy, but recent trends show that riskier small stocks have outperformed small-cap value indexes over the past three years, with the Russell 2000 Index exceeding its value counterpart by over 800 basis points. However, experts predict a potential resurgence for small-cap value by 2026, which could benefit ETFs like the WisdomTree U.S. SmallCap Dividend Fund (DES) [2][3]. Group 1: Small-Cap Value Performance - The Russell 2000 Index has outperformed its value counterpart by more than 800 basis points over the last three years [2]. - Despite recent underperformance, there is optimism for a small-cap value rebound in 2026 [2]. - DES has generated decent returns over the past three years and is positioned to participate in a potential small-cap value recovery [3][4]. Group 2: DES ETF Characteristics - DES, with a market capitalization of $1.86 billion, is not a typical cap-weighted fund; it follows a dividend-weighted index, indicating quality and value traits [4]. - The focus on high-quality, profitable businesses is emphasized as a long-term investment strategy, with metrics like net margins and return on assets being crucial indicators of portfolio quality [5]. - More than a third of Russell 2000 member firms are estimated to be unprofitable, highlighting the potential advantage of investing in DES, which includes firms with better profitability profiles [5][6]. Group 3: Market Sentiment and Valuations - Many financially weak small-caps have seen their valuations rise this year, reflecting a speculative mentality among investors [6]. - The price/sales ratio of profitless stocks has surged from mid-single digits to nearly 20, indicating that investors are paying higher prices based on future earnings potential rather than current profits [7].