ETF Specialist

This Dividend-Weighted Mid-Cap ETF Is a Strong Pick for the Long Haul

Adam McCullough, CFA

A knock against market-cap weighting is that it may lead a portfolio to overweight the most expensive areas of the market. This is because a stock's weighting in a market-cap-weighted portfolio moves with its share price, and its weighting increases (and decreases) with its price. Fundamental index funds attempt to circumvent this potential issue by severing the link between a stock's portfolio weighting and its price.

 WisdomTree U.S. MidCap Dividend ETF (DON) employs a fundamental weighting approach and is a strong candidate for exposure to dividend-paying U.S. mid-cap stocks. 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. The fund's cost advantage gives it a leg up over its peers and supports its Morningstar Analyst Rating of Bronze.

Adam McCullough, CFA has a position in the following securities mentioned above: VOE. Find out about Morningstar's editorial policies.