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

Zacks Equity Research

A smart beta exchange traded fund, the WisdomTree Japan SmallCap Dividend Fund (DFJ) debuted on 06/16/2006, and offers broad exposure to the Asia-Pacific (Developed) ETFs category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

The fund is managed by Wisdomtree, and has been able to amass over $561.91 M, which makes it one of the average sized 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

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

With one of the more expensive products in the space, this ETF has annual operating expenses of 0.58%.

It's 12-month trailing dividend yield comes in at 1.86%.

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.

Looking at individual holdings, Sankyo Co Ltd accounts for about 0.85% of total assets, followed by Dic Corp and Matsui Securities Co Ltd.

DFJ's top 10 holdings account for about 6% of its total assets under management.

Performance and Risk

Year-to-date, the WisdomTree Japan SmallCap Dividend Fund has gained about 2.07% so far, and is down about -17.69% over the last 12 months (as of 05/10/2019). DFJ has traded between $60.90 and $82.84 in this past 52-week period.

The ETF has a beta of 0.67 and standard deviation of 13.43% for the trailing three-year period, making it a medium risk choice in the space. With about 810 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.

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 $3.49 B in assets, iShares MSCI Japan ETF has $13.65 B. BBJP has an expense ratio of 0.19% and EWJ charges 0.47%.

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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WisdomTree Japan SmallCap Dividend Fund (DFJ): ETF Research Reports
 
iShares MSCI Japan ETF (EWJ): ETF Research Reports
 
JPMorgan BetaBuilders Japan ETF (BBJP): ETF Research Reports
 
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