On Monday, Barron’s highlighted a Credit Suisse study that showed that DES has the best fixed coverage ratio among U.S. dividend ETFs as its constituents firms have cash flow amounting to 1.5 times obligations. Said another way, DES is a small-cap ETF, but its holdings should not be crimped to continue paying and growing dividends.
The WisdomTree U.S SmallCap Dividend Growth Fund (NasdaqGM: DGRS) is flat over the past 90 days. DGRS tracks the WisdomTree U.S. SmallCap Dividend Growth Index, which yields 2.33%. The index is weighed by fundamental factors such as growth expectations, return on equity and return on assets, according to WisdomTree.
Although the advantages and drawbacks of low volatility are constantly debated, there is no debating that the PowerShares S&P SmallCap Low Volatility Portfolio (NYSEArca: XSLV) has also held steady among rival cap-weighted small-cap ETFs over the past few months.
XSLV, the small-cap answer to the popular PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV), tracks the 120 stocks from the S&P SmallCap 600 Index with the lowest trailing 12-month volatility.
Critics often assail large-cap low volatility ETFs for being richly valued due to large weights to defensive sectors, but low volatility in the world of small-caps does not mean hefty allocations to utilities or health care stocks.
Rather, XSLV allocates 46.6% of its weight to financials and even with its promise of reduced volatility, the ETF’s valuation is below that of IWM.
iShares Core S&P Small-Cap ETF
Tom Lydon’s clients own shares of IWM.