Comparing WisdomTree’s Small-Cap Dividend ETFs

ETF Trends

WisdomTree (WETF), the only publicly traded pure-play ETF sponsor, is known for its substantial suite of dividend-oriented funds. The lineup grew by one Thursday with the introduction of the WisdomTree U.S. SmallCap Dividend Growth Fund (DGRS).

DGRS is WisdomTree’s second U.S.-focused small-cap dividend ETF, joining the $792.5 million WisdomTree SmallCap Dividend Fund (DES) in the firm’s lineup. One domestically-focused small-cap dividend ETF may appear to be enough for any ETF issuer, but that are significant differences between the new DGRS and the established DES that make these ETFs potential complements to each other rather than rivals. [Growth and Yield With Small-Cap Dividend ETFs]

Obviously, both are small-cap funds and both charge 0.38% per year, but the similarities are limited from there. DES has an impressive long-term track record. The fund has returned 37.7% over the past two years, outpacing some other large, non-dividend small-cap ETFs along the way. However, DES also represents a more conservative approach for accessing small stocks with decent payouts. Financials, industrials and utilities combine for about 57% of the ETF’s weight. [A Look at WisdomTree's Dividend ETFs]

DGRS features no exposure to stodgy dividend sectors such as utilities and telecom and the new ETF’s allocation to staples is scant. While the new ETF, which caps sector weights at 25% at its annual rebalanccing, does have a 25.1% weight to industrials, consumer discretionary and technology combine for about 38%. The exposure to discretionary and tech could boost the new ETF’s allure as a play on future dividend growth and rising interest rates.

“Many assume that high quality, dividend growth opportunities are confined to blue chip, large-cap stocks. But in an environment where the U.S. economy is improving and interest rates are beginning to rise, small caps,more closely tied to the U.S. economy, will likely become more attractive than large caps, which are more globally sensitive,” said WisdomTree Research Director Jeremy Schwartz in a statement. [WisdomTree's New Small-Cap Dividend ETF]

DGRS also represents a new approach to dividend ETFs. Rather than focusing on for how long constituent companies have increased their payouts, DGRS uses metrics such as earnings quality and return on assets to assemble its 170-stock lineup.

In addition to DGRS, WisdomTree has two other dividend growth ETFs, the WisdomTree Global ex-US Growth Fund (DNL) and the WisdomTree U.S. Dividend Growth Fund (DGRW). DGRW debuted in May and now has $35.2 million in assets.

WisdomTree SmallCap Dividend Fund

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ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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