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

Zacks Equity Research
Updated
Seacoast Banking Corporation of Florida (SBCF) could be a stock to avoid from a technical perspective, as the firm is seeing unfavorable trends on the moving average crossover front

A smart beta exchange traded fund, the WisdomTree Japan SmallCap Dividend Fund (DFJ) debuted on 06/16/2006, and offers broad exposure to the Asia-Pacific (Developed) ETFs category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

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This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

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

Managed by Wisdomtree, DFJ has amassed assets over $1.01 B, making it one of the larger 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

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.58%.

The fund has a 12-month trailing dividend yield of 1.77%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

When you look at individual holdings, Sankyo Co Ltd accounts for about 0.74% of the fund's total assets, followed by Dic Corp and Matsui Securities Co Ltd.

DFJ's top 10 holdings account for about 5.88% of its total assets under management.

Performance and Risk

So far this year, DFJ has lost about -8.98%, and is down about -3.67% in the last one year (as of 10/16/2018). During this past 52-week period, the fund has traded between $72.49 and $85.46.

The ETF has a beta of 0.48 and standard deviation of 13.53% for the trailing three-year period, making it a medium risk choice in the space. With about 822 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.

WisdomTree Japan Hedged Equity Fund (DXJ) tracks WisdomTree Japan Hedged Equity Index and the iShares MSCI Japan ETF (EWJ) tracks MSCI Japan Index. WisdomTree Japan Hedged Equity Fund has $5.46 B in assets, iShares MSCI Japan ETF has $16.64 B. DXJ has an expense ratio of 0.48% 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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WISDMTR-JP SC D (DFJ): ETF Research Reports
 
ISHARS-JAPAN (EWJ): ETF Research Reports
 
WISDMTR-J HEF (DXJ): ETF Research Reports
 
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Zacks Investment Research