Morningstar Magazine - August/September 2018 - 54

Strategies

Balancing Act
This fund targets dividend yield without incurring too much risk.

BEST IDEAS: PASSIVE

Adam McCullough

WisdomTree U.S. MidCap Dividend ETF DON

This article is adapted from the ETF's Morningstar Global Fund Report dated
June 8, 2018.

Stats 05/31/2018

WisdomTree U.S. MidCap Dividend ETF DON is a strong candidate for exposure
to dividend-paying U.S. mid-cap stocks. The fund weights its holdings by
their expected dividend payment, which effectively diversifies risk and rebalances
into stocks as they become cheaper relative to their dividends. The fund's
cost advantage gives it a leg up over its peers and supports its Morningstar
Analyst Rating of Bronze.

Over the past decade through May, the fund topped the mid-value category
average and Russell Mid-Cap Value Index by 3 and 1.9 percentage
points, respectively, with lower risk. The fund's favorable stock exposure within
the energy and consumer discretionary sectors contributed the most to
its outperformance. K
Adam McCullough, CFA, is a passive strategies analyst with Morningstar Research Services.

Morningstar Category
Mid-Cap Value

Expense Ratio
0.38%

Category Average Expense
1.13%

5-Yr Annlzd Return
12.64%

5-Yr % Rank in Cat
14

Morningstar Pillars 05/31/2018
Process
∞ Positive

Many dividend-oriented funds land in the mid-cap value Morningstar Category
because they weight large-cap stocks by dividend yield or equally, which
knocks down their portfolio's weighted average market cap. This fund offers
broad exposure to mid-cap U.S. dividend-paying stocks and weights
them by the total value of dividends that each stock is expected to pay during
the next year. This approach balances firm size (larger companies tend to
make higher aggregate dividend payments) against yield. When it rebalances
back to its target dividend weightings each December, the fund adds
to stocks that have become cheaper relative to their dividends and trims
positions that have become more expensive.

Performance
∞ Positive

Morningstar August/September 2018

Parent
¶ Neutral

Price
∞ Positive

$14K
13.47
13.36
12

WisdomTree US MidCap Dividend ETF

Morningstar US Mid Value TR

10
8

06/2015

06/2016

06/2017
Morningstar Ratings 05/31/2018

Morningstar Style Box 05/31/2018

Fund Centroid
Mstar
weighted avg. of Period Return
equity holdings
3-Yr
High

Mstar
Risk

Zone
75% of fund
equity holdings

Mstar
Rating

Below Avg QQQQQ

5-Yr

High

Below Avg QQQQQ

10-Yr

High

Average

QQQQQ
QQQQQ

Overall Rating

Deep Core Core Core High
Value Value
Grwth Grwth

Top 5 Sectors 05/31/2018

Sectors

■ Fund

❙ Category Average

t Consumer Cyclical
u Real Estate

15.32

6.67

13.76 14.55

p Industrials
f Utilities

3-Yr High 3-Yr Low

25.69

13.83

6.10

y Financial Services

9.58

8.97

0%
54

People
¶ Neutral

Growth of 10K 05/31/2018

Micro Small Mid Large Giant

This portfolio effectively balances the trade-off of targeting dividend yield
without incurring too much risk. Although the fund doesn't screen its holdings
for profitability or dividend sustainability, a few dividend cuts across its
portfolio shouldn't significantly affect its performance because it is broadly
diversified and skews toward larger, more-stable names. Its broad reach limits
its exposure to firm-specific risk and the highest-yielding stocks, which
are more likely to cut their dividends than their lower-yielding counterparts.
At the end of May, it had greater exposure to consumer discretionary,
real estate, and utilities stocks than the average fund in the category, and less
exposure to the financial and technology sectors.

Morningstar Analyst Rating
´

20.92
10

20

30

40

25.69

23.10

15.95

15.32

15.50

13.25

10.87

9.58

9.57

8.68
Table of Contents for the Digital Edition of Morningstar Magazine - August/September 2018
