Not A Middling Mid-Cap ETF

Mid-cap stocks can and do offer the potential for significant out-performance of large-cap names. Consider this: Since the start of the current bull market in U.S. stocks through the end of the second quarter, the S&P MidCap 400 Index is up 406.2 percent while the S&P 500 is up “just” 357.3 percent.

Often overlooked in the mid-cap conversation is the asset class' ability to deliver income investors, a theme that can be tapped with the WisdomTree U.S. MidCap Dividend Fund DON. DON is the oldest and largest mid-cap dividend ETF on the market.

What To Know

DON, which recently turned 12 years old, underscores the point that mid-caps can be stellar performers over the long haul. Actually, the WisdomTree fund enhances that point. Since the start of this bull market, DON is up more than 486 percent, including dividends paid, making it one of the best mid-cap funds over that period. That includes actively managed funds, too.

Not only does DON weight members by dividends, it can help investors avoid richly valued mid-caps.

“This fund weights its holdings by their expected dividend payment, which effectively diversifies risk, and rebalances into stocks as they become cheaper relative to their dividends,” said Morningstar in a recent note.

Why It's Important

For over nine years, DON has been less volatile than the S&P MidCap 400 Index. From 2013 through 2017, DON outperformed the mid-cap benchmark on three occasions on an annual basis with one of the two “laggard” years being by just a tenth of a percent.

DON's trailing 12-month dividend yield is 2.13 percent, or nearly 100 basis points above the dividend yield on the S&P MidCap 400.

“Although the fund doesn't screen its holdings for profitability or dividend sustainability, a few dividend cuts across its portfolio shouldn't significantly impact its performance because it is broadly diversified and skews toward larger, more-stable names,” said Morningstar.

What's Next

DON holds nearly 400 stocks. The fund is up 2.1 percent year-to-date, which is an admirable showing when factoring in a combined 27.46 percent weight to the rate-sensitive real estate and utilities sectors.

DON “overweights stocks trading at low prices compared with their dividends and decreases the fund's exposure to stocks that have become more expensive relative to their dividends and adds to positions that have become cheaper at its annual rebalance,” said Morningstar.

The research firm has a Bronze rating on DON.

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