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?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other 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
DFJ is managed by Wisdomtree, and this fund has amassed over $780.48 M, which makes it one of the larger ETFs in the Asia-Pacific (Developed) ETFs. Before fees and expenses, DFJ 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
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Operating expenses on an annual basis are 0.58% for DFJ, making it one of the more expensive products in the space.
DFJ's 12-month trailing dividend yield is 1.99%.
Sector Exposure and Top Holdings
While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Looking at individual holdings, Sankyo Co Ltd accounts for about 0.84% of total assets, followed by Matsui Securities Co Ltd and Dic Corp.
DFJ's top 10 holdings account for about 6.17% of its total assets under management.
Performance and Risk
Year-to-date, the WisdomTree Japan SmallCap Dividend Fund has lost about -18.67% so far, and is down about -17.28% over the last 12 months (as of 12/21/2018). DFJ has traded between $64.77 and $85.46 in this past 52-week period.
The ETF has a beta of 0.61 and standard deviation of 13.99% for the trailing three-year period, making it a medium risk choice in the space. With about 818 holdings, it effectively diversifies company-specific risk.
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 $4.10 B in assets, iShares MSCI Japan ETF has $15.13 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.
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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