WisdomTree has announced the launch of the WisdomTree Japan SmallCap Dividend UCITS ETF on London Stock Exchange.

WisdomTree has launched a Japanese small-cap dividend ETF on the London Stock Exchange.

The fund tracks the WisdomTree Japan SmallCap Dividend Index, a proprietary index focused on dividend-paying small-cap stocks listed in Japan.

The index is based on a universe of Tokyo Stock Exchange stocks that have paid out at least $5m in cash dividends in the prior year and have a market capitalization of at least $100m excluding the 300 largest companies.

Weighting is on the basis of cash dividends paid (dividend-per-share multiplied by number of shares outstanding), subject to a constituent cap of 2% and a sector cap of 25%.

The index has an authentic small-cap disposition with almost 70% of constituents smaller than $2bn in market cap and more than 80% of weighted-average revenues generated within Japan, compared to 57% for Japanese large-caps..

The index has a trailing dividend yield of 2.2% and is highly diversified with 881 constituents, the largest of which are Sankyo, Matsui Securities, DIC, Nippon Electric Glass and Toyota Boshoku. The combined weight of the top 10 constituents is 5.78%. The largest sector exposures are industrials (25.3%), consumer discretionary (22.7%), materials (13.1%), information technology (12.0%) and financials (9.9%).

The investment case for Japanese small-cap companies lies in the fact that they are more locally oriented and provide greater exposure to the local economy’s endogenously driven growth cycle, and with strengthening domestic demand.

Christopher Gannatti, WisdomTree Head of Research in Europe said, “We think Japanese small-caps provide the purest way to tap into the local economic growth prospects. After decades of deflation, deleveraging and demand contraction, Japan’s domestic demand is now driving growth. A structural shortage of labour is forcing improvements in both the quality of employment and the incomes earned from employment and the government are delivering on a policy switch to ‘Fiscal Dominance’ and Japanese small-caps have performed strongly across multiple time horizons in the past ten years, offering differentiation relative to large-caps alone.”

[pullquote]“The WisdomTree Japan SmallCap Dividend UCITS ETF taps into the Japanese domestic economy while offering exposure to the size and value factors, which have been the clear winners from a factor perspective in Japan in the past decade.“
– Rafi Aviav, WisdomTree Head of Product Development in Europe.[/pullquote]“With the Yen searching for a firm direction over the past few years, many investors have been uncertain as to the best way to invest in Japanese equities. If investors want to try to side-step the Yen’s movements and benefit from growth within Japan, small-caps can offer a potential, domestically-focused opportunity,” he said.

Rafi Aviav, WisdomTree Head of Product Development in Europe, added, “The WisdomTree Japan SmallCap Dividend UCITS ETF taps into the Japanese domestic economy while offering exposure to the size and value factors, which have been the clear winners from a factor perspective in Japan in the past decade.

“The index has a live track record of more than 10 years, through which it has outperformed its small-cap benchmark by 1.7% per annum and its large-cap benchmark by 3.4% per annum, while maintaining low correlations (around 0.5) with European and US markets, true to its domestic focus.

“We believe this fund offers a unique way to access Japanese small-caps and it is particularly relevant in these times, when global free trade may be challenged.”

The fund has a net expense ratio of 0.48% and is listed on the LSE in USD with accumulating (DFJA LN) and distributing (DFJ LN) share classes.

It is the first Japanese small-cap equity income ETF to list in Europe.