Age isn’t anything but a number. But in the world of investing, advisors and investors often pay attention to funds’ ages. That’s true of exchange traded funds. To be sure, it’s a superficial metric, as age or lack thereof isn’t a guarantee of solid performance. Still, age can reflect durability and a fund’s ability to ride out turbulent market environments. That’s true of the WisdomTree U.S. LargeCap Dividend Fund (DLN), which turned 18 years old in June.
More important than age is performance, and DLN has that. Over the past three years, DLN beat the largest ETF in the dividend category by 810 basis points while sporting lower annualized volatility.
Part of the secret to DLN’s success is that its methodology is a departure from most of its rivals. The bulk of the old-guard dividend ETFs on the market either weight components by yield or put emphasis on stocks’ payout-increase streaks. The WisdomTree U.S. LargeCap Dividend Index – DLN’s underlying benchmark – weights holdings by paid dividends, which can provide valuable insight into a company’s future payout prospects.
DLN a Better Dividend Mousetrap
While DLN is more than 18 years old, it was ahead of its time when it came to market, and that arguably remains true today. For example, the ETF was one of the first in the category to feature significant exposure to technology stocks before many in the sector became credible dividend growth stories.
On a related note, DLN isn’t heavily allocated to traditional high-yield sectors, which can be advantageous on multiple fronts, including when interest rates rise.
“High-dividend stocks typically come from more-mature businesses that choose to pay out profits rather than reinvest them. Investors will often find these companies in the financials, energy, utilities, and industrials sectors. High-dividend stocks come with tantalizing yields but carry some risk. Most notably, high-dividend stocks in economically sensitive sectors may be vulnerable during an economic slowdown,” according to Morningstar research.
Mitigated Exposure to Rate Risk
By focusing on dividend growers, DLN mitigates exposure to the rate risk and potential for negative dividend action (cuts or suspensions) often associated with high yield names. So what DLN lacks in yield it makes up for with higher quality and more dependability – positives for long-term investors.
“Dividend-growth stocks don’t usually boast robust yields like high-dividend stocks do, but they come from companies that are usually financially healthy and that have raised their dividends over time. As such, dividend-growth stocks generally exhibit some resilience during market downturns and economic slowdowns,” added Morningstar.
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