A Small-Cap Dividend ETF With a Value Tilt
WisdomTree SmallCap Dividend ETF's approach offers value investors an interesting way to play small caps.
Alex Bryan: WisdomTree SmallCap Dividend ETF (DES) may not be marketed as a value fund, but it offers a strong value tilt. It targets U.S. small-cap dividend-paying companies and weights these holdings based on the dollar value of dividends that they are expected to pay out over the next year. This introduces a value tilt in two ways. First, dividend-paying stocks tend to be slower growing and trade out lower valuations than non-dividend-paying firms.
Secondly, the fund's dividend-weighting approach causes it to increase its exposure to stocks as they become cheaper relative to their dividends and trim back on positions that become more expensive when it rebalances. This allows investors to profit from mean reversions in valuations.
Alex Bryan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.