Small-cap stocks and the corresponding exchange traded funds recently entered bear markets, reminding investors considering this asset class that a quality approach can offer some defense with smaller companies.

The WisdomTree U.S. SmallCap Dividend Growth Fund (NasdaqGM: DGRS) helps investors focus on quality small-cap names with the advantages of dividend growth.

DGRS tracks the WisdomTree U.S. SmallCap Dividend Growth Index, which is weighed by fundamental factors such as growth expectations, return on equity and return on assets, according to WisdomTree.

“The WisdomTree U.S. SmallCap Quality Dividend Growth Index is a more selective cut of small caps, containing 272 constituents. The Index screens for companies with attractive growth and profitability characteristics on an annual basis, also in December,” said WisdomTree in a recent note.

Slice And Dice

The refined approach to small caps used by DGRS offers other advantages, including harnessing companies with strong balance sheets.

“By slicing the universe of U.S. small caps in these different ways, the fundamental exposures that result for these Indexes are considerably different from the Russell 2000. The WisdomTree U.S. SmallCap Quality Dividend Growth Index offers an interest-coverage ratio of over twice that of the Russell 2000, while at a significant valuation discount based on price-to-earnings,” according to WisdomTree.

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