WisdomTree's New International High-Dividend ETF: Access to Worldwide Smallcaps

Aug.25.06 | About: WisdomTree International (DLS)

I am a fan of stocks that pay dividends. I am a bigger fan of small companies that pay dividends. When a small company pays a dividend it usually means the company has been around for a while and management is not busy trying to figure out how to line their pockets with stock options at the expense of shareholders; instead they are actually thinking about how to return their hard earned gains.

While I am not a fan of small caps in the US, which are overvalued relative to large cap, I do think small caps have value outside the US. Index fund management company, Wisdom Tree Investments, came out with an Exchange Traded Fund that holds an index of non-US high dividend stocks. The fund is WisdomTree Intl SC (NYSEARCA:DLS) and is listed on the New York Stock Exchange. At 0.58%, I find the management fee quite high (more than double) for a passively managed index fund/ETF but low for an international small cap fund. An actively managed small cap international fund often charges 1.25%-2.50%.

While large cap managers almost never beat their benchmark, small cap managers often do. This argues for indexing large cap components and indexing the large cap. In an environment where most global central banks are raising interest rates, I don’t feel compelled to buy an index of high dividend stocks just now. I have not yet bought this fund but I will be watching it. I may buy a small position in my IRA just to begin watching this ETF.

Here is the description of the index that DLS mimics from the prospectus (pdf):

WisdomTree International SmallCap Dividend Index

Number of Components: approximately 1235

Index Description: The WisdomTree International SmallCap Dividend Index measures the performance of companies that pay regular cash dividends from the small-capitalization segment of markets in Europe, Far East Asia and Australasia. The Index is created by first removing from the WisdomTree DIEFA Index the 300 companies with the highest market capitalizations as of the Index measurement date. Those companies that comprise the bottom 25% of the remaining market capitalization of this group are included in the WisdomTree International SmallCap Dividend Index. Companies are weighted in the Index based on cash dividends paid. The Index consists of small capitalization securities.

Interestingly, this index is not capitalization or float weighted as are most indexes. It is dividend weighted. The company managements that pay the most in dividends get the highest weighting. I like this thought process as it buys the shares of companies whose management rewards shareholders before their executive option plans.

DLS 3-month chart:

DLS 3-month chart

Disclosure: As of this publishing, I do not own WisdomTree Intl SmCap Divid (DLS). However, I am considering buying and may at any time.