• The Small-Cap Segment: What Happened to the Russell 2000? Broadly speaking, we believe that question can be answered in three words: relative value rebalancing. 2013 was a year of strong performance in small caps. At the end of the year, the WisdomTree SmallCap Dividend Index underwent its annual rebalance, specifically selling stocks that experienced strong share price performance but that did not grow dividends commensurately. The Russell 2000 Index, being market cap weighted, had no such discipline to focus back on a measure of relative valuation, and we think that managing valuation risk is one of the most crucial actions to undertake after a year defined by multiple expansion.
Can Outperformance Continue?
In 2013, U.S. equities performed strongly, but that performance was primarily driven by multiple expansion. After such a year, one of the most important risks to manage is valuation risk—which our U.S. dividend Indexes are built to do. Also, if U.S. Treasury yields rise more slowly than initially expected, these types of stocks could remain important generators of income.
Unless otherwise noted, data source is Bloomberg.
Important Risks Related to this Article
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. Performance, especially for very short time periods, should not be the sole factor in making your investment decision.