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Is WisdomTree U.S. SmallCap Dividend ETF (DES) a Strong ETF Right Now?

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Designed to provide broad exposure to the Style Box - Small Cap Value category of the market, the WisdomTree U.S. SmallCap Dividend ETF (DES - Free Report) is a smart beta exchange traded fund launched on 06/16/2006.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option 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.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

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

Managed by Wisdomtree, DES has amassed assets over $1.65 billion, making it one of the larger ETFs in the Style Box - Small Cap Value. This particular fund, before fees and expenses, seeks to match the performance of the WisdomTree U.S. SmallCap Dividend Index.

The WisdomTree U.S. SmallCap Dividend Index is a fundamentally weighted index measuring the performance of the small-capitalization segment of the US dividend-paying market.

Cost & Other Expenses

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Annual operating expenses for this ETF are 0.38%, making it on par with most peer products in the space.

DES's 12-month trailing dividend yield is 3.38%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

DES's heaviest allocation is in the Financials sector, which is about 26.70% of the portfolio. Its Industrials and Utilities round out the top three.

Taking into account individual holdings, South Jersey Industries Inc (SJI - Free Report) accounts for about 1.29% of the fund's total assets, followed by Cogent Communications Hldgs (CCOI - Free Report) and Spire Inc (SR - Free Report) .

DES's top 10 holdings account for about 9.42% of its total assets under management.

Performance and Risk

The ETF has lost about -18.95% so far this year and is down about -14.61% in the last one year (as of 10/10/2022). In the past 52-week period, it has traded between $25.74 and $33.79.

The ETF has a beta of 1.07 and standard deviation of 30.15% for the trailing three-year period, making it a medium risk choice in the space. With about 664 holdings, it effectively diversifies company-specific risk.

Alternatives

WisdomTree U.S. SmallCap Dividend ETF is an excellent option for investors seeking to outperform the Style Box - Small Cap Value segment of the market. There are other ETFs in the space which investors could consider as well.

IShares Russell 2000 Value ETF (IWN - Free Report) tracks Russell 2000 Value Index and the Vanguard SmallCap Value ETF (VBR - Free Report) tracks CRSP U.S. Small Cap Value Index. IShares Russell 2000 Value ETF has $11.15 billion in assets, Vanguard SmallCap Value ETF has $21.44 billion. IWN has an expense ratio of 0.23% and VBR charges 0.07%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Value.

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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