Profit-taking pressures have begun to creep onto Wall Street as earnings euphoria has bolstered major equity indexes to all-time highs, prompting many to lock-in gains ahead of the next potential pullback. Amid the strong bull market, industry juggernaut WisdomTree is expanding its suite of offerings with a targeted fund that should appeal to investors who have been eagerly looking to participate in Wall Street’s rally. The new WisdomTree U.S. SmallCap Dividend Growth Fund (DGRS) will look to take advantage of the markets’ growing optimism as it targets arguably the most volatile corner of the domestic market: small cap stocks, with a twist [Download 101 ETF Lessons Every Financial Advisor Should Learn].
Small Caps For Dividend Lovers
WisdomTree is making history with the launch of DGRS as it is the first small cap-focused ETF out on the market that targets growing dividend-paying securities. Exposure to this often overlooked corner of the U.S. market is appealing for several reasons; first and foremost, small cap stocks have historically outperformed their large-cap counterparts during bull markets. Second, with interest rates still hovering near record lows, investors are actively scouring the market for meaningful sources of current income.
Lastly, the sluggish global recovery should also bode well for this ETF as investors continue to rotate out of large caps with far-reaching international exposure, and into smaller cap companies, which should benefit from the improving domestic recovery [see 101 High Yield ETFs Every Dividend Investor Should Know].
Jeremy Schwartz, Director of Research at WisdomTree, noted that the issuers’ “family of dividend growth ETFs offer a unique, forward-looking dividend growth methodology. A number of dividend growth indexes focus on backward-looking dividend-screening criteria that we believe exclude many dividend initiators and fast-growers that are often found in the small-cap arena. DGRS is the first, and only, strategy focusing on the U.S. market’s small-cap dividend growth leaders, a segment we believe offers some of the most attractive dividend growth opportunities” [see also Small Cap ETFdb Portfolio].
The current lineup of dividend-growth funds from WisdomTree, excluding the new small cap ETF, includes:
- U.S. Dividend Growth Fund (DGRW, A-) with $35 million in assets under management
- Global ex-U.S. Growth Fund (DNL, C+) with $64 million in assets under management
Meet The Competition
DGRS joins a fairly competitive space, the Small Cap Blend Equities ETFdb Category, which is currently made up of nearly two dozen offerings. The new WisdomTree ETF charges 0.38% in annual fees, which falls in the middle of the cost spectrum for the broader category, which features an average expense of 0.36%. DGRS will face some stiff competition from the three largest ETFs in this space, which are:
- iShares Russell 2000 Index Fund (IWM, B+) with over $25.5 billion in AUM
- iShares Core S&P Small-Cap ETF (IJR, A) with over $11.6 billion in AUM
- Vanguard Small-Cap ETF (VB, A) with over $7 billion in AUM
The new WisdomTree ETF should be able to separate itself from the pack because it focuses exclusively on small cap size, dividend-paying securities that exhibit growth characteristics.
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Disclosure: No positions at time of writing.