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

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The WisdomTree Japan SmallCap Dividend Fund (DFJ - Free Report) made its debut on 06/16/2006, and is a smart beta exchange traded fund that provides 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.

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.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

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.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

DFJ is managed by Wisdomtree, and this fund has amassed over $445.67 M, which makes it one of the average sized ETFs in the Asia-Pacific (Developed) ETFs. DFJ seeks to match the performance of the WisdomTree Japan SmallCap Dividend Index before fees and expenses.

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.

It's 12-month trailing dividend yield comes in at 2.25%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

Looking at individual holdings, Haseko Corp accounts for about 1.32% of total assets, followed by Aozora Bank Ltd and Casio Computer Co Ltd.

Its top 10 holdings account for approximately 7.65% of DFJ's total assets under management.

Performance and Risk

Year-to-date, the WisdomTree Japan SmallCap Dividend Fund has lost about -0.71% so far, and was up about 10.52% over the last 12 months (as of 01/13/2020). DFJ has traded between $62.54 and $75.84 in this past 52-week period.

The fund has a beta of 0.70 and standard deviation of 13.40% for the trailing three-year period, which makes DFJ a medium risk choice in this particular space. With about 817 holdings, it effectively diversifies company-specific risk.

Alternatives

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.

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 $4.45 B in assets, iShares MSCI Japan ETF has $14.08 B. BBJP has an expense ratio of 0.19% and EWJ charges 0.47%.

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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