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Is WisdomTree Japan SmallCap Dividend Fund (DFJ) a Strong ETF Right Now?

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The WisdomTree Japan SmallCap Dividend Fund (DFJ) made its debut on 06/16/2006, and is a smart beta exchange traded fund that provides broad exposure to the Asia-Pacific (Developed) ETFs category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

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

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

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

Managed by Wisdomtree, DFJ has amassed assets over $749.76 M, making it one of the larger ETFs in the Asia-Pacific (Developed) ETFs. DFJ, before fees and expenses, seeks to match the performance of the WisdomTree Japan SmallCap Dividend Index.

WisdomTree Japan SmallCap Dividend Index measures the performance of dividend-paying small capitalization companies in Japan. After the 300 largest companies have been removed from the WisdomTree Japan Dividend Index, the remaining companies are chosen for inclusion in the Index. Companies are weighted in the Index based on annual cash dividends paid.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.58%, making it one of the more expensive products in the space.

DFJ's 12-month trailing dividend yield is 1.84%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

Taking into account individual holdings, Sankyo Co Ltd accounts for about 0.85% of the fund's total assets, followed by Matsui Securities Co Ltd and Dic Corp.

The top 10 holdings account for about 6.1% of total assets under management.

Performance and Risk

Year-to-date, the WisdomTree Japan SmallCap Dividend Fund has added roughly 3.05% so far, and is down about -19.41% over the last 12 months (as of 01/14/2019). DFJ has traded between $60.90 and $85.46 in this past 52-week period.

The ETF has a beta of 0.68 and standard deviation of 14.26% for the trailing three-year period, making it a medium risk choice in the space. With about 817 holdings, it effectively diversifies company-specific risk.

Alternatives

WisdomTree Japan SmallCap Dividend Fund 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.

WisdomTree Japan Hedged Equity Fund (DXJ) tracks WisdomTree Japan Hedged Equity Index and the iShares MSCI Japan ETF (EWJ) tracks MSCI Japan Index. WisdomTree Japan Hedged Equity Fund has $3.59 B in assets, iShares MSCI Japan ETF has $15.62 B. DXJ has an expense ratio of 0.48% and EWJ charges 0.49%.

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.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.


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