WisdomTree recently rebalanced its family of international dividend indexes, resulting in some changes for well-known exchange traded funds, including the WisdomTree International SmallCap Dividend Fund (DLS).
DLS follows the WisdomTree International SmallCap Dividend Index, which is comprised of the small-capitalization segment of the dividend-paying market in the industrialized world, excluding the U.S. and Canada.
“Sector weights in the small-cap Index were modestly impacted, with only Energy showing a change greater than 2% in absolute value,” says WisdomTree analyst Brian Manby in a recent note. “Again, these changes represent a return to a normalized developed equity market Dividend Stream™ now that the economic outlook has improved across sectors from the throes of the COVID-19 pandemic.”
Today, the $1.47 billion DLS has a deep cyclical value feel, with industrials commanding 23% of the fund’s weight while financial services and materials stocks combine for another 27.65%. As for country changes following the recent DLS rebalance, as Manby notes, the fund’s Sweden exposure increased 2.4%, but other changes were small.
Sweden is the fourth-largest geographic allocation in DLS. The fund devotes over 52% of its weight to Japan, the U.K., and Australia.
“More important, however, is the valuation profile of each Index after the rebalance. In each of the four, valuations were reduced considerably across key ratios, such as price-to-earnings, price-to-book, price-to-sales and price-to-cash flow, all while generally maintaining their pre-rebalance dividend yields,” adds Manby. “This signals to us that the reduced valuations do not indicate a particular risk to company dividends, which is the ethos of their methodologies.”
DLS is doing something right. Its distribution yield of 2.59% is well in excess of what investors find on the Russell 2000 and the S&P SmallCap 600 indexes. Additionally, DLS’s rules-based methodology helps investors identify reliable sources of ex-U.S. small-cap dividend growth without paying up too much — no small feat.
“We believe the Index methodologies once again give credence to the benefits of a rules-based, dividend-focused approach to international investing, and prove that there have been compelling fundamental, sector and country opportunities when utilizing this approach in a portfolio,” concludes Manby.
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