After getting past a variety of elections—most notably the French presidential election—without anti-market sentiment spreading throughout Europe, we have seen a relatively large shift in equity market performance. Fundamentals within Europe were allowed to drive performance as opposed to equity markets needing to be wary of Brexit or Trump-like election surprises.
Europe’s fundamentals and, particularly, rebounding earnings have been strong.1
Small-Cap Stocks Can Respond Quickly to Strong Economic/Fundamental Data
In Europe, we’ve seen the cyclical nature of small caps—and it happens to be connected to a distinct outperformance over European large caps over the longer term.
European Small Caps—Both Short- and Long-Term Track Record Looks Strong
Characteristics of the WisdomTree Europe SmallCap Dividend Index today:
Revenue: First, it’s notable that over 70% of weighted average revenue comes from inside of Europe.2 Investors who are excited about European equities today are largely excited by what is happening within Europe, and small caps tend to be a purer play on this theme, as opposed to large-cap multinationals.
Cyclical Exposures: Second, it’s notable that more than 83% of the weight of the WisdomTree Europe SmallCap Dividend Index is in cyclical sectors.3 This gives the Index a very offense-oriented positioning, and when positive catalysts (such as election results) come in, there tends to be a greater potential to respond.
Track Record: Finally, we see the over-19%return for the first half of the year and the over-30% one-year return coupled with a strong longer-term track record. The WisdomTree Europe SmallCap Dividend Index has been live since June 1, 2006, which gives investors more than 11 years to consider when performing any analysis. Outperformance of European large caps has been frequent.
