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If you open a financial text to uncover risk info on different stock types, you’d probably find U.S. large cap stocks listed as “safer” than foreign stocks. And you’d probably find foreign stocks described as less volatile than emerging market stocks. The problem is… those books would be wrong.

Standardized measures of risk have… in many cases… shown emerging market small company ETFs to be less risky than U.S. small company ETFs. (Review my article on July 12, 2010, “3 Reasons To Consider Emerging Market Small Cap ETFs.”)

Since my July 12 feature, the WisdomTree Emerging Market Small Cap Dividend Fund (NYSEARCA:DGS) has grown 14.3%. The Russell 2000 — the premier benchmark for the U.S. small cap arena — is up 7.7% in the same period. And yet, DGS is less volatile.

In fact, the Russell 2000 was deeply entrenched in a steep correction one month ago. That hasn’t been the case for emerging market small caps… as they’ve been hitting new 52-week highs. (Review my commentary from August 23, 2010, “7 Non-Treasury ETFs Near 52-Week Highs.”)

So perhaps U.S. small caps are going to catch a bid alongside Republican pick-ups in Congress. Less anti-business regulation would certainly help the job creating entities. However, the WisdomTree Emerging Market Small Cap Dividend Fund (DGS) has something else that a Russell 2000 ETF lacks… a more robust income stream.

For instance, WisdomTree declared its quarterly distributions. For those investors who purchased DGS before the ex-dividend date of 9/20, they will receive $0.452 per share. The quarterly payout suggests a 3.7% annual income stream. In my estimation, this has far better potential for growth and income over a 10-year treasury with a 2.7% coupon or the 1.2% yield from the iShares Russell 2000 Fund (NYSEARCA:IWM).

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

Source: Emerging Market Small Cap ETFs: Income Distribution Sweetens Your Pie!