Entering Wednesday, the Russell 2000 and S&P SmallCap 600 indexes were up an average of 20.8% year-to-date, confirming small-cap stocks are back with a vengeance. Arguably overlooked in that scenario, some vibrant ETFs represent higher-quality approaches to smaller stocks. Take the case of the WisdomTree U.S. SmallCap Dividend Fund (DES). The $2.16 billion DES, which turned 20 last month, is clearly neither small nor young. However, the fund’s perks are arguably going unheralded at a time of small-cap strength.
Up 21.5% year-to-date, DES is beating the average return of the aforementioned small-cap benchmarks and keeping pace with the Russell 2000 Value Index. Impressively, DES has been the better risk-adjusted bet, as its annualized volatility (to this point in 2026) of 15.7% is noticeably below what’s found on the small-cap indexes mentioned here.
Dividends Still Matter
Lately, companies’ gave embraced buybacks as a preferred source of shareholder rewards. Alongside investors’ enthusiasm for mega-cap growth stocks, many of which don’t pay dividends, that’s led to dividend investing flying under the radar. That’s particularly true with smaller stocks — an asset class not typically known for payouts. However, this isn’t the time to gloss over ETFs such as DES.
“Dividend strategies have enjoyed some tailwinds this year,” noted Morningstar’s Todd Trubey. “First came the so-called Saaspocalypse, a sharp software stock downdraft stemming from fears that artificial intelligence would disrupt their platforms. That hammered many previously hot technology stocks that tended to pay lower dividends or none.”
Another perk with DES is that it offers some leverage to the hard assets low obsolescence (HALO) trade. A roughly 24% allocation to industrial and energy stocks highlights that benefit. Plus, a case can be made that many of the ETF’s financial services holdings (25.59% of the roster) face minimal risk of being displaced at by AI.
