Small-caps and the related equities have found their respective grooves. The fact that the Russell 2000 Index is higher by more than 7% year-to-date confirms this. On the surface, the small-cap resurgence is good news. However, upon closer examination, advisors and investors may find merit in quality strategies such as the WisdomTree US Smallcap Quality Dividend Growth Fund (DGRS ).
Up 11.7% year-to-date, DGRS is strutting its stuff. It’s handily outperforming the Russell 2000 and S&P SmallCap 600 indexes. Indeed, it validates the union of quality and smaller stocks. In fact, the WisdomTree ETF could be just what the investing doctor ordered for the current small-cap environment.
DGRS Can Extend Leadership
DGRS is off to an impressive start this year. Gaining nearly 12% in less than two months is enough to prompt some investors to ponder if the ETF can keep the good times going. Obviously, only time will answer that question. However, there are credible reasons to believe DGRS can continue delivering the goods as small-caps continue moving higher.
The reasoning is simple. So-called “junk” stocks have led much of this small-cap resurgence — names not found in DGRS. As noted in a recent MarketWatch report, 57.4% of the Russell Microcap Index are companies that don’t make money. That’s relevant because 1,000 members of that gauge are also part of the Russell 2000.
Experienced investors know that it’s not unusual for junky small-caps to lead the group higher, but that scenario typically materializes when the U.S. economy is coming out of a recession. That’s not the case today, prompting some experts to note that the current state of small-cap affairs is concerning. Concerning, that is, for those not engaged with quality-oriented fare such as DGRS.
There’s another trend that highlights the allure of DGRS. History confirms that when financially questionable small-caps lead in non-recessionary environments, that situation corrects, often rapidly and violently, as investors move out of junk and into quality. On that note, it’s worth remembering that quality stocks have a six decades-long track record of beating junk rivals by wide margins and with significantly less volatility. That trend indicates that DGRS has the potential to offer better risk-adjusted small-cap returns.
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