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

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Designed to provide broad exposure to the Asia-Pacific (Developed) ETFs category of the U.S. equity market, the WisdomTree Japan SmallCap Dividend Fund (DFJ) is a smart beta exchange traded fund launched on 06/16/2006.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

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

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

The fund is managed by Wisdomtree. DFJ has been able to amass assets over $958.55 M, making it one of the larger ETFs in the Asia-Pacific (Developed) ETFs. DFJ seeks to match the performance of the WisdomTree Japan SmallCap Dividend Index before fees and expenses.

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.

Operating expenses on an annual basis are 0.58% for DFJ, making it one of the more expensive products in the space.

It has a 12-month trailing dividend yield of 1.60%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Looking at individual holdings, Sbi Holdings Inc/japan accounts for about 1.10% of total assets, followed by Sankyo Co Ltd and Sojitz Corp.

DFJ's top 10 holdings account for about 5.94% of its total assets under management.

Performance and Risk

DFJ return is roughly 0.15% so far this year, and as of 06/18/2018, was up about 16.10% in the last one year. In the past 52-week period, the fund has traded between $69.08 and $85.46.

DFJ has a beta of 0.51 and standard deviation of 14.61% for the trailing three-year period, which makes the fund a medium choice in the space. With about 755 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 $6.62 B in assets, iShares MSCI Japan ETF has $21.34 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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WISDMTR-JP SC D (DFJ): ETF Research Reports
 
ISHARS-JAPAN (EWJ): ETF Research Reports
 
WISDMTR-J HEF (DXJ): ETF Research Reports
 
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