This is a passive ETF that tracks the MSCI EAFE Small Cap Index, which is made up of developed-market small-cap stocks outside the US and Canada. It holds small companies in developed markets such as Europe, Japan, and Australia on a market-cap-weighted basis.

It suits diversification-minded long-term investors who want to add developed-market small-cap exposure to a core portfolio that international large caps alone do not provide.

It is a passively managed (index-tracking) ETF run by BlackRock (iShares).

The fund holds the developed-market small companies included in the MSCI EAFE Small Cap Index in proportion to their market capitalization, tracking the overall performance of developed-market small caps outside the US and Canada. It is spread across many countries and sectors, so concentration in any single stock is relatively low.

• Broad diversification specialized in developed-market small caps outside the US and Canada
• Fills the small-cap gap that international large-cap ETFs do not cover

Assets under management (AUM) stand at $12.7B, and the expense ratio is 0.40% per year.

Compared with similar international diversified ETFs, its distinguishing feature is its focus on small caps, and holding it alongside large-cap-focused ETFs rounds out your exposure.

Because they are developed-market small caps, the holdings tend to react sensitively to the global economy and shifts in risk appetite, and the fund can show larger volatility than large-cap funds. Short-term trends are also affected by exchange rates and the economic cycle in each region.

Fund flows continue as investors look to strengthen international diversification. When risk appetite rises, money flows into small caps, while in periods of heightened volatility money tends to flow out relatively. The pattern varies widely depending on the environment.

Its strength is broad diversified exposure to international small caps, while higher volatility than large caps and currency exposure can work against it.

VEA, IEFA, and EFA in the table track the same developed markets outside the US, but they are large-cap focused and therefore complement the small-cap exposure of SCZ. VXUS and VT are broader global ETFs that either include the US or extend to emerging markets. To compare directly within the same non-US small-cap space, you can also consider VSS, which invests in global small caps outside the US, and the SPDR-family GWX.

Here are the points to review before investing in SCZ. It is useful as a means of diversifying into international small caps, but it is wise to thoroughly check its volatility relative to large caps, multi-currency exposure, and its role relative to core assets before buying.

The high volatility typical of small caps and multi-currency exposure are the main drivers of short-term volatility. In periods when risk appetite contracts, declines can be larger than for large caps, so position sizing needs to be managed.

It is a suitable choice as a developed-market small-cap satellite holding that complements an international large-cap core. If you want to widen your diversification, consider SCZ; if you want broader global exposure, VXUS and VT are alternatives.