Is WisdomTree Japan SmallCap Dividend ETF a Strong ETF Right Now?

What Are Smart Beta ETFs?

Making its debut on 06/16/2006, smart beta exchange traded fund WisdomTree Japan SmallCap Dividend ETF DFJ provides investors broad exposure to the Asia-Pacific (Developed) ETFs category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

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.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is sponsored by Wisdomtree. It has amassed assets over $236.88 million, making it one of the average sized ETFs in the Asia-Pacific (Developed) ETFs. DFJ seeks to match the performance of the WisdomTree Japan SmallCap Dividend Index before fees and expenses.

The WisdomTree Japan SmallCap Dividend Index is comprised of dividend-paying small capitalization companies in Japan.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Annual operating expenses for this ETF are 0.58%, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 1.91%.

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.

Looking at individual holdings, Horiba Ltd accounts for about 0.95% of total assets, followed by Tokyo Seimitsu Co Ltd and Toyo Tire Co.

The top 10 holdings account for about 6.32% of total assets under management.

Performance and Risk

So far this year, DFJ has gained about 1.52%, and was up about 12.02% in the last one year (as of 08/15/2024). During this past 52-week period, the fund has traded between $65.89 and $79.55.

DFJ has a beta of 0.49 and standard deviation of 15.60% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 733 holdings, it effectively diversifies company-specific risk.

Alternatives

WisdomTree Japan SmallCap Dividend ETF is an excellent option for investors seeking to outperform the Asia-Pacific (Developed) ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

JPMorgan BetaBuilders Japan ETF BBJP tracks MORNINGSTAR JAPAN TRGT MRKT EXPOSURE ID and the iShares MSCI Japan ETF EWJ tracks MSCI Japan Index. JPMorgan BetaBuilders Japan ETF has $11.47 billion in assets, iShares MSCI Japan ETF has $15.42 billion. BBJP has an expense ratio of 0.19% and EWJ charges 0.50%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Asia-Pacific (Developed) ETFs.

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