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A Post-Brexit ETF Prescription For Safety

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A Post-Brexit ETF Prescription For Safety

After global financial markets were pummeled by Great Britain's decision to leave the European Union, investors are understandably hunting for safe-haven assets, but that search doesn't need to be limited to U.S. Treasurys and the Japanese yen, two of this year's most favored safe-haven destinations. Nor does Brexit mean investors should altogether eschew equities.

"S&P Global Market Intelligence thinks investors should look closely at to mid- and small-cap dividend paying securities as well as investment-grade focused bond products," said S&P Capital IQ in a note out Friday.

While flocking to mid caps and small caps in the wake of event such as Brexit isn't likely to strike many investors as logical, what is logical is that mid- and small-cap dividend payers historically display less volatility than their non-dividend paying counterparts.

Related Link: Post-Brexit Analysis Shows Many ETFs Did Their Jobs

Among exchange traded funds, the WisdomTree MidCap Dividend Fund (NYSE: DON) and the WisdomTree SmallCap Dividend Fund(NYSE: DES) are the dominant names when it comes to smaller dividend-paying U.S. equities.

DON has a lengthy track record of not only topping actively managed mid-cap mutual funds, but of outpacing traditional mid-cap indexes while being less volatile.

That penchant for being less volatile was on display less Friday when DON performed about 80 basis points less poorly than mid-cap ETFs tracking the S&P MidCap 400 Index.

For investors looking for income and safety with smaller stocks, DES offers its own set of advantages.

"For investors seeking small-cap dividend approach, WisdomTree Small Cap Dividend (DES 72 Marketweight) is a strong candidate. Rather than focusing on the dividend record of the company, as REGL does, DES looks at the dividends the company is projected to pay in the coming year. While financials (25% of assets) and industrials (17%) are widely held, so are consumer discretionary (17%) securities," said S&P Capital IQ.

The research firm has a marketweight rating on DES.

Like DON, DES was less bad than its non-dividend rivals last Friday. Following the Brexit fallout, DES lost 3.2 percent while ETFs tracking the Russell 2000 and the S&P SmallCap 600 Index lost an average of 3.7 percent.

 

Related Articles (DES + DON)

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