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WisdomTree U.S. MidCap Dividend ETF Has A High Exposure To Cyclical Sectors

Published Fri, 22 May 2020 20:41:14 -0400 on Seeking Alpha

DON invests in mid-cap dividend stocks in the United States.
The fund has a high exposure to cyclical sectors, and this may cause it to continue to underperform in the current recessionary environment.
DON has an inferior growth profile than its large-cap peer fund.
ETF Overview
WisdomTree U.S. MidCap Dividend ETF (DON) invests in mid-cap dividend stocks in the United States. DON tracks the WisdomTree MidCap Dividend Index. The fund has high exposure to cyclical sectors and hence may continue to underperform in the current recessionary environment. In addition, many stocks in DON's portfolio may be forced to cut their dividends if this recession prolongs. In this environment, it may be better to own dividend funds that invest in large-cap stocks due to their stronger balance sheet.
Data by YCharts
Fund Analysis
No concentration risk to single stocks
Evaluating the risk and reward profile is important as investors should invest in a fund that has better risk and reward profile in order to mitigate the risk. Here, we will begin by examining the fund's concentration risk. What we like about DON's portfolio of stocks is the fact that no one stock represents over 5% of its total portfolio. At the moment, its top holding only represents about 1.23% of DON's portfolio, and its top-10 holdings represent less than 10% of the total portfolio. Therefore, concentration risk is low.

Source: WisdomTree Website
High exposure to cyclical sectors is not good in a recessionary environment
Despite low concentration risk to any single stocks, DON's portfolio may have higher exposure to individual sectors. This is because the fund only caps sector weightings at 25% of its portfolio. As can be seen from the chart below, the largest sector by weighting, financials sector, represents about 22.1% of its total portfolio. This sector is rate sensitive and often underperforms in a recessionary environment. If we take a closer look at the chart, we will... Read more


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