Making its debut on 06/16/2006, smart beta exchange traded fund WisdomTree Japan SmallCap Dividend Fund (DFJ) provides investors broad exposure to the Asia-Pacific (Developed) ETFs category of the U.S. equity market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
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.
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 $1.04 B, making it one of the larger ETFs in the Asia-Pacific (Developed) ETFs. This particular fund seeks to match the performance of the WisdomTree Japan SmallCap Dividend Index before fees and expenses.
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.
Annual operating expenses for this ETF are 0.58%, making it one of the more expensive products in the space.
It has a 12-month trailing dividend yield of 1.74%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many 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 Matsui Securities Co Ltd and Dic Corp.
Its top 10 holdings account for approximately 5.68% of DFJ's total assets under management.
Performance and Risk
DFJ has lost about -7.15% so far this year, and as of 07/13/2018, is up about 7.38% in the last one year. In the past 52-week period, the fund has traded between $70.15 and $85.46.
The fund has a beta of 0.54 and standard deviation of 14.52% for the trailing three-year period, which makes DFJ a medium choice in this particular space. With about 833 holdings, it effectively diversifies company-specific risk.
WisdomTree Japan SmallCap Dividend Fund is a reasonable option for investors seeking to outperform the Asia-Pacific (Developed) ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
WISDMTR-J HEF (DXJ) tracks WisdomTree Japan Hedged Equity Index and the iShares MSCI Japan ETF (EWJ) tracks MSCI Japan Index. WISDMTR-J HEF has $6.04 B in assets, iShares MSCI Japan ETF has $17.91 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.
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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