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

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Making its debut on 06/16/2006, smart beta exchange traded fund WisdomTree Japan SmallCap Dividend ETF (DFJ - Free Report) provides investors broad exposure to the Asia-Pacific (Developed) ETFs category of the market.

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.

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.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

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.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is sponsored by Wisdomtree. It has amassed assets over $256.24 million, making it one of the average sized ETFs in the Asia-Pacific (Developed) ETFs. This particular fund, 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.

Annual operating expenses for DFJ are 0.58%, which makes it one of the more expensive products in the space.

DFJ's 12-month trailing dividend yield is 2.39%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

Looking at individual holdings, Haseko Corp accounts for about 1.50% of total assets, followed by Mitsubishi Gas Chemical Co Inc and Matsui Securities Co Ltd.

DFJ's top 10 holdings account for about 7.81% of its total assets under management.

Performance and Risk

So far this year, DFJ has lost about -0.63%, and is up about 0.27% in the last one year (as of 11/24/2020). During this past 52-week period, the fund has traded between $49.20 and $75.84.

DFJ has a beta of 0.68 and standard deviation of 20.76% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 791 holdings, it effectively diversifies company-specific risk.

Alternatives

WisdomTree Japan SmallCap Dividend ETF is a reasonable option for investors seeking to outperform the Asia-Pacific (Developed) ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

JPMorgan BetaBuilders Japan ETF (BBJP - Free Report) tracks MORNINGSTAR JAPAN TRGT MRKT EXPOSURE ID and the iShares MSCI Japan ETF (EWJ - Free Report) tracks MSCI Japan Index. JPMorgan BetaBuilders Japan ETF has $6.02 billion in assets, iShares MSCI Japan ETF has $11.88 billion. BBJP has an expense ratio of 0.19% 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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