DGS WisdomTree Emerging Markets SmallCap Dividend Fund

Although WisdomTree is a relatively small ETF issuer, the company is beginning to make a name for itself in the industry. While it is gaining prominence for its innovative hedged ETFs, like in the case of Japan and DXJ, its real claim to fame is its dividend weighting.

The firm has a complete lineup of dividend weighted ETFs that are unlike many others on the market. That is because these securities do not base security weights on the size of a company, but rather on cash dividends paid (see Three Impressive Small Cap Dividend ETFs).

This novel approach could be better for those who believe in the power of dividends and the signal that they send to the market. After all, a cash payment is very hard to fake, so many believe that these dividend payers are safer than their non-paying counterparts.

A dividend-focused strategy has certainly paid off for WisdomTree, as several of its most popular ETFs come to us in this space including DLN and DGS. These funds both have more than one billion in total AUM, and were probably part of the inspiration for the firm’s latest two filings in the dividend space.

These brand new documents, which were released to the SEC for approval, follow in the footsteps of several of its top products, zeroing in on stocks that are paying dividends and giving more weight to those that offer up bigger cash payments. However, there is a twist with these two proposed products, as they both look to put a premium on dividend growth (read 4 Excellent Dividend ETFs for Income and Stability).

Proposed Dividend ETFs in Focus

 The in-registration funds, the WisdomTree U.S. Dividend Growth Fund and the WisdomTree U.S. Small Cap Dividend Growth Fund, look to center on their respective cap levels with a focus on payouts. Both appear to be based off of established WisdomTree indexes, but seek to apply more restrictive filters, which could make these funds relatively unique in the ETF world.

First, the more large cap-focused U.S. Dividend Growth Fund will be tracking the WisdomTree Dividend Index, holding 300 stocks that have the best fundamental factors and a high likelihood of dividend increases. Specifically, long-term earnings growth expectations, ROE, and ROA, will be a big focus of the fund beyond the projected growth of the payout.

The ETF looks to focus on stocks that have paid a dividend in the past 12 months and have a market cap of at least $2 billion. The product will be weighted by dividends on an annual basis, and stocks will be capped at 5% of the total (read Have You Overlooked These Dividend ETFs?)

The small cap-centric product will take a similar approach, tracking the WisdomTree Small Cap Dividend Index. Of these securities, once again 300 stocks that have the best fundamental factors and prospects for dividend increases will be included.

The main difference between the two ETFs looks to be the market cap level that is targeted. The first ETF will focus on large caps with a two billion market cap minimum while this small cap ETF only requires a market cap of just $100 million.

Additionally, the small cap fund will only allow any one stock to obtain 2% of the ETF’s total capital. This suggests that it will be far more spread out among its 300 stock portfolio, although it will still look at ROA, ROE, and earnings growth, in addition to projected dividend increases, for its exposure.

Portfolio Fit

These two ETFs could be interesting for those who like WisdomTree’s approach to dividends, but value dividend growth more than anything. The extra fundamental factors could also help to drill down the portfolio, so you might get a better selection of stocks in these ETFs (read Can You Beat These High Dividend ETFs?).

However, this exposure is probably going to cost a bit more—thanks to the addition of these factors—so it might not be a low cost choice. This already somewhat true for WisdomTree’s other products, as they are rarely the cheapest but instead hang their hat on having unique exposure.

ETF Competitors

The funds will not be short of competitors though, as the dividend ETF world is rife with choices. Chief among these is the SPDR S&P Dividend ETF (SDY).

This extremely popular product does about one million shares in volume a day and has a market cap over $10.5 billion. This is all with focusing on higher yielding stocks that have a proven history of consistently increasing dividends for at least the past 25 years.

Given the success of this product and countless others in the space, it is reasonable to assume that there is a great deal of interest in the dividend growth ETF world. However, it will be interesting to see if WisdomTree’s new filings can hit the market, and if the focus on dividend weighting is enough to differentiate itself and attract new assets in this extremely competitive—but lucrative—space.

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WISDMTR-E SC DV (DGS): ETF Research Reports
 
WISDMTR-LC DIV (DLN): ETF Research Reports
 
WISDMTR-J HEF (DXJ): ETF Research Reports
 
SPDR-SP DIV ETF (SDY): ETF Research Reports
 
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