Dividend exchange traded funds have undoubtedly become an
important part of the overall ETF landscape.
Rapid proliferation of this ETF sub-segment has ensured that
investors can access everything from
tracking stocks with lengthy dividend streaks to
low volatility and high yield fare as well
Thing is most ETFs focused on U.S. equities are heavy on
large-caps. The phenomenon is a curious one because at the
international level, some ETFs
offering exposure to small-caps have proven quite
Even more curious is that despite the fact that mid- and
small-cap ETFs combined each have about $60 billion in assets
under management, these capitalization segments are arguably
underrepresented in the dividend ETF realm.
"Yet while U.S.-based dividend ETFs collectively represent
almost $49 billion in assets, or about 9% of U.S. equity assets
under management, there are less than $1 billion combined in the
mid- and small-cap dividend category," WisdomTree Research
Director Jeremy Schwartz said in a research note.
Schwartz notes there "is more than $10.5 billion invested in
either ETFs or exchange-traded notes tracking the performance of
the Alerian MLP Index, and more than $20 billion in ETFs designed
to track the Dow Jones U.S. Real Estate Index and the MSCI U.S.
REIT Index," statistics that serve as a reminder regarding how
much income investors have embraced MLPs and REITs in recent
The combined market capitalization of those three indexes is
$1.37 trillion, a fair bit below the $1.52 trillion market
capitalization of the WisdomTree MidCap Index (WTMDI). The
WisdomTree SmallCap Dividend Index tracks a combined market
capitalization of over $511 billion,
according to WisdomTree
The WisdomTree MidCap Dividend Fund (NYSE:
) tracks the aforementioned mid-cap index. DON, which debuted in
2006 and now has almost $472 million in assets, features a decent
30-day SEC yield of just over three percent.
As is the case with
all of WisdomTree's U.S.-focused equity dividend
, DON pays a monthly dividend. Notable is the fact that DON's
index does not screen based on yield or dividend increase
Rather, the WisdomTree MidCap Index is "dividend weighted
annually to reflect the proportionate share of the aggregate cash
dividends each component company is projected to pay in the
coming year," according to the issuer.
Financials account for almost 25.6 percent of DON's sector
weight and top-10 holdings include Windstream (NYSE:
), Best Buy (NYSE:
) and Western Union (NYSE:
As for income investors looking for domestic small-cap
exposure, the WisdomTree SmallCap Dividend Fund (NYSE:
) is the ETF to consider. DES, which also debuted in 2006 and now
has over $474 million in AUM, uses the same screening methodology
as DON and also pays a monthly dividend.
Returns prove small-cap dividends can be rewarding. Over the
past two years, DES has outpaced the iShares Russell 2000 Index
) by nearly 800 basis points while being less volatile than
DES has a 25.4 percent allocation to financials. Top holdings
include RR Donnelley (NYSE:
), Vector Group (NYSE:
) and Tal International (NYSE:
"We recognize the inherent differences in methodology and
market segments between these particular indexes, but we feel
that the one common element-that many people consider these types
of asset classes, be it real estate, REITS, MLPs and dividends-as
income generators," said Schwartz. "Through the common theme of
'income generation,' we believe there is merit to the comparison,
but we acknowledge that people should consider the differences in
potential risk profiles between these asset classes when
conducting any analysis."
For more on dividend ETFs, click
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