Do Dividend Indexes Concentrate in Defensive Sectors?
It is important to point out that dividend indexes do not need to concentrate solely in the defensive sectors (i.e., Consumer Staples, Health Care, Telecommunication Services, and Utilities). In addition to providing exposure to a different capitalization segment of the market, it’s quite clear that WisdomTree’s small-cap dividend Indexes also can provide very different sector exposures than traditional dividend indexes that concentrate on the large-cap segment of the market.
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Defensive Sectors: The WisdomTree U.S. Small Cap Dividend Growth Index and WisdomTree SmallCap Dividend Index each have less than 25% of their exposure in the defensive sectors. Competing dividend-focused indexes have anywhere from one-third to two-thirds of their exposures here.
Consumer Discretionary: If the U.S. economy is indeed on track to recovery, Consumer Discretionary can be a very important sector through which to gain exposure. The WisdomTree U.S. Small Cap Dividend Growth Index has more than 25% of its exposure in this sector. By contrast, Consumer Staples is a sector that is often the top exposure in many large-cap focused dividend indexes, and this sector receives less than 2% weight in the U.S. SmallCap Dividend Growth Index. This is a measure of the dividend landscape diversification this Index brings.
Doing Dividends Differently
WisdomTree continues to believe that there are opportunities in U.S. dividends. When people think about U.S. small caps, we believe that it is time to think beyond the Russell 2000 Index. Dividend-paying small caps offer a completely different exposure, all the while providing growth potential without an expensive valuation relative to the broader market.
Dividends are not guaranteed, and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time. Diversification does not eliminate the risk of experiencing investment loss. You cannot invest directly in an index.
Jeremy Schwartz is director of research at WisdomTree Investments (NasdaqGM: WETF). This post was republished with permission from the WisdomTree blog.