Investors are making early bets on an economic recovery in Europe by putting money into small cap stocks.

DFE

(click to expand)

The WisdomTree Europe SmallCap Dividend Fund (DFE) is up 22% year to date compared to a positive 5.6% return for the Europe large cap fundDJ Stoxx 50 ETF (FEU).

DFE invests in the small-capitalization segment of the European dividend-paying market and companies are weighted based on annual cash dividends paid. Top holdings include UK distributorELECTROCOMPONENTS PLC, British merchant bank Close Brothers Group Plc, Finnish plumbing and HVAC manufacturer Uponor Oyj, British real estate developer BELLWAY PLC and Swedish property company Kungsleden AB.

FEU holds positions in the 50 largest companies traded on the major exchanges in Europe.  Top holdings include BPHSBC and Nestle.

The small cap firms were crushed when markets were falling and fund redemptions were forcing managers to dump the shares at any price.  The lower trading volume for smaller cap stocks actually benefits prices on the way up.

Despite the strong gains year-to-date, DFE is still about 55% below 2007 highs.

For more, see the ETF Directory for a complete listing of International ETFs.