These Small-Cap ETFs Offers Big Value and Dividends

With the artificial intelligence (AI) trade violently cutting both ways, stoking fears of a “SaaS-pocalypse”, value-oriented and high-dividend strategies are surging in the early innings of 2026.

Among the ETFs participating in that party is the WisdomTree U.S. SmallCap Dividend Fund (DES). One of the oldest ETFs in the small-cap dividend category, DES is up nearly 12% year-to-date, easily outpacing the Russell 2000 and Russell 2000 Value indexes along the way. DES’s bullishness also confirms that investors seeking high dividends and/or value don’t need to confine their searches to the large-cap universe.

To the credit of this $2 billion ETF, it was recently named to Morningstar’s list of best high-dividend ETFs, joining its stablemate, the WisdomTree U.S. MidCap Dividend Fund (DON), as the only two funds from outside the large-cap realm to make the cut.

DES Delivers for Equity Income Investors

DES, which follows the WisdomTree U.S. SmallCap Dividend Index, does things differently than many of its rivals in the small-cap dividend and value spaces. Notably, that index, and thus the fund itself, weights components by expected dividends.

“Weighting by total expected dividends rather than dividend yield favors larger companies. Stocks with the best quality and momentum traits then earn extra weight, rewarding healthy companies and limiting exposure to those with potential flaws,” observes Morningstar analyst Ryan Jackson.

One obvious advantage of that methodology is that, as Jackson points out, the DES portfolio consistently outperforms the Russell 2000 in terms of holdings’ profitability. Said another way, the Russell 2000 is littered with companies that don’t make money, but that’s not a worry with DES. The WisdomTree also employs a unique value approach that could benefit long-term investors.

“When this fund restores stocks’ dividend weights at each annual rebalance, it effectively doubles down on stocks whose prices sank relative to their dividends and peers and trims exposure to the best performers,” adds Jackson. “This contrarian approach pushes the fund into value territory despite its broad scope. While the fund may favor some unworthy companies and prematurely cut back on some winners, this buy-low/sell-high tactic has paid off over time.”

That methodology gives DES, which pays monthly dividends, a deep value feel that could play out in investors’ favor over the long term.

“Emphasizing unloved stocks makes this a deeper-value portfolio than the Russell 2000 Value,” concludes Jackson. “It can fall behind when the value factor slumps, like when it finished in the small-value category’s bottom quartile in 2019 and 2020. Introducing quality and momentum into weighting benefited the fund during these environments, though: It beat over half of small-value funds in the growth-friendly 2023 and 2024 calendar years.”

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This article was prepared as part of WisdomTree’s general paid sponsorship of VettaFi | ETF Trends. This specific content within and any opinions expressed therein belong solely to VettaFi and do not reflect the opinion or analysis of WisdomTree, its employees, or its affiliates. Content published on VettaFi | ETF Trends is provided for educational purposes only and should not be considered investment or tax advice. For investment or tax advice, please consult a financial professional. 

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