WisdomTree SmallCap Dividend ETF: A Compelling Smart Beta Approach To Small-Cap Stocks

I have recently written about small-cap ETFs, some of the most out-of-favor domestic stock funds to have undergone the broad market correction periods of 2018. Despite the recent turbulence in the small-cap world, I continue to think that this sub-segment of stock investing is likely to beat the broad, diversified equities market over the long run (i.e. seven to ten years at least).

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While I continue to be a fan of Vanguard's low cost small-cap ETF (VB), I have recently come across what seems to be an equally appealing fund managed by WisdomTree. The US SmallCap Dividend ETF (DES) has caught my attention for one main reason. Not only does it hold rich dividend-paying small cap names (I have written about the case for dividend investing in the past), it boasts a smart beta feature that allocates AUM based on dividend income rather than a market cap criteria - an approach that WisdomTree calls "dividend stream weighting." As of November 2018, more than 40% of the stocks contained within DES yielded at least 3.5% vs. the Russell 2000's 11%, while not a single stock failed to make at least a small dividend payment recently (vs. more than half of the stocks contained in the Russell 2000).
While historical performance should not be used as a reliable predictor of future results, analyzing it can often tell us a bit about whether an ETF has done a decent job at tracking or even beating its benchmark. The graph and table below... Read more