A smart beta exchange traded fund, the WisdomTree Japan SmallCap Dividend ETF (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?
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.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking 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.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
DFJ is managed by Wisdomtree, and this fund has amassed over $221.49 million, which makes it one of the average sized 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
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Operating expenses on an annual basis are 0.58% for this ETF, which makes it one of the more expensive products in the space.
The fund has a 12-month trailing dividend yield of 2.22%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Taking into account individual holdings, Seven Bank Ltd accounts for about 0.84% of the fund's total assets, followed by Jtekt Corp and Electric Power Development Co.
The top 10 holdings account for about 6.62% of total assets under management.
Performance and Risk
The ETF has added roughly 4.32% so far this year and is up about 18% in the last one year (as of 07/01/2021). In the past 52-week period, it has traded between $61.92 and $79.93.
The ETF has a beta of 0.61 and standard deviation of 21.02% for the trailing three-year period, making it a medium risk choice in the space. With about 693 holdings, it effectively diversifies company-specific risk.
Alternatives
WisdomTree Japan SmallCap Dividend ETF 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.
JPMorgan (NYSE:JPM) BetaBuilders Japan ETF (BBJP) tracks MORNINGSTAR JAPAN TRGT MRKT EXPOSURE ID and the iShares MSCI Japan ETF (EWJ) tracks MSCI Japan Index. JPMorgan BetaBuilders Japan ETF has $8.59 billion in assets, iShares MSCI Japan ETF has $11.31 billion. BBJP has an expense ratio of 0.19% and EWJ charges 0.51%.
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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WisdomTree Japan SmallCap Dividend ETF (DFJ): ETF Research Reports
iShares MSCI Japan ETF (EWJ): ETF Research Reports
JPMorgan BetaBuilders Japan ETF (BBJP): ETF Research Reports
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