WisdomTree, the New York-based fifth largest sponsor of exchange traded funds, continues with its launching spree this year amid a strong bull market. The number of new launches this year has already surpassed the total number of launches in the previous two combined and given the phenomenal success of their start performer this year – the Japan Hedged Equity Fund (DXJ); it’s quite likely the company will continue to explore niches in an effort to beat the markets.
The new product – the WisdomTree US SmallCap Dividend Growth Fund (DGRS), focuses on the small cap sector of the market but with a unique feature in that it targets growing dividend paying securities. Investors often tend to overlook the small cap companies due to higher returns volatility.
However, small cap stocks have historically outperformed their large cap peers during bull markets. Also, small cap stocks tend to be tied more closely to the domestic market, and with the US economy showing signs of durable growth; they are likely to become more attractive than blue-chip large caps which are more sensitive to global developments.
Since Bernanke has announced the Federal Reserve will hold lending rates at extremely low levels for an extended period of time, those who are looking for meaningful sources of regular income may consider this option.
DGRS follows the WisdomTree US SmallCap Dividend Growth Index, a proprietary benchmark that provides exposure to US small capitalization dividend-paying stocks with growth traits.
The benchmark tracks the bottom 25 percent of the market capitalization of the WisdomTree Dividend Index after removing the 300 largest companies. Next it selects the top 50 percent companies with the best combined rank of growth and “quality factors” from the primary universe. The quality factor includes three year average ROA and ROE while the growth factor includes earnings growth expectations.
Based on the most recent declared dividends, the benchmark is rebalanced annually to reflect the cash dividend each constituent is forecasted to pay in the coming year, thus making it the first fund in the small cap segment that uses the forward-looking dividend growth strategy.
The portfolio consists of about 170 securities and is biased towards industrials and consumer discretionary which take up nearly 50 percent of total assets under management. Materials, information technology and health care sector occupy the remaining three spots in the top five with more than 28 percent of total asset allocation.
DGRS has an annual expense ratio of 38 basis points.
Disclosure: No holdings