Is WisdomTree U.S. SmallCap Dividend ETF a Strong ETF Right Now?

Designed to provide broad exposure to the Style Box - Small Cap Value category of the market, the WisdomTree U.S. SmallCap Dividend ETF DES is a smart beta exchange traded fund launched on 06/16/2006.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is managed by Wisdomtree, and has been able to amass over $2.06 billion, which makes it one of the larger ETFs in the Style Box - Small Cap Value. Before fees and expenses, DES seeks to match the performance of the WisdomTree U.S. SmallCap Dividend Index.

The WisdomTree U.S. SmallCap Dividend Index is a fundamentally weighted index measuring the performance of the small-capitalization segment of the US dividend-paying market.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.38% for DES, making it on par with most peer products in the space.

It's 12-month trailing dividend yield comes in at 2.58%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 27.60% of the portfolio, the fund has heaviest allocation to the Financials sector; Industrials and Consumer Discretionary round out the top three.

Looking at individual holdings, Organon & Co OGN accounts for about 1.57% of total assets, followed by TFS Financial Corp TFSL and Allete Inc ALE.

The top 10 holdings account for about 8.19% of total assets under management.

Performance and Risk

The ETF return is roughly 9.65% and it's up approximately 17.30% so far this year and in the past one year (as of 07/31/2024), respectively. DES has traded between $26.55 and $34.83 during this last 52-week period.

The fund has a beta of 1.09 and standard deviation of 19.51% for the trailing three-year period, which makes DES a medium risk choice in this particular space. With about 595 holdings, it effectively diversifies company-specific risk.

Alternatives

WisdomTree U.S. SmallCap Dividend ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.

Avantis U.S. Small Cap Value ETF AVUV tracks ---------------------------------------- and the Vanguard Small-Cap Value ETF VBR tracks CRSP U.S. Small Cap Value Index. Avantis U.S. Small Cap Value ETF has $13.13 billion in assets, Vanguard Small-Cap Value ETF has $29.85 billion. AVUV has an expense ratio of 0.25% and VBR charges 0.07%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Value.

To read this article on Zacks.com click here.