DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

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KJVanguard
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DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by KJVanguard » Fri Oct 12, 2018 4:35 pm

DGS would be WISDOMTREE EMERGING MARKETS SMALL CAP DIVIDEND ETF.

It's one of the rare non-Vanguard funds that I own. The only real negative I see in it is a 63 basis point expense ratio, which looks obscene by Vanguard standards. We all know Vanguard could provide an equivalent fund for less, but getting them to drink the Kool Aid that makes one believe in a small value premium seems unlikely for the powers that be at Vanguard. Of course we can all still ask, as tens of thousands of suggestions might eventually give them the hint they need.

I was just curious if others owned it and what they thought about it. I have seen it mentioned here in times gone by.

Seems a very DFA-type fund, except DFA would go with book to market instead of dividends, though both will give you value stocks. Dividends seem a prudent idea in EM, since a common argument is that accounting standards may be lax in EM. Accounting standards were lax in 19th century America too, and many companies published annual reports that were fairy tales. Back then before the SEC watched over companies, companies had to pay cash dividends to prove they were in good fiscal health. Anyone can fake a report, but it's hard to fake a cash payout.

sillysaver
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Re: DGS: Own it? Opinions on it?

Post by sillysaver » Fri Oct 12, 2018 4:47 pm

I own a bit in a Roth account. Seems like a good proxy for value and a good way to get small-cap exposure. I'm not going crazy with tilting but this is a good option.

Longtermgrowth
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Re: DGS: Own it? Opinions on it?

Post by Longtermgrowth » Sat Oct 13, 2018 4:41 am

KJVanguard wrote:
Fri Oct 12, 2018 4:35 pm
Seems a very DFA-type fund, except DFA would go with book to market instead of dividends, though both will give you value stocks. Dividends seem a prudent idea in EM, since a common argument is that accounting standards may be lax in EM. Accounting standards were lax in 19th century America too, and many companies published annual reports that were fairy tales. Back then before the SEC watched over companies, companies had to pay cash dividends to prove they were in good fiscal health. Anyone can fake a report, but it's hard to fake a cash payout.
I agree, the WisdomTree funds I researched for small value actually compared closely to DFA on portfoliovisualizer last I looked in 2016.
Also like that thought process on dividends, especially in emerging markets.

I do hold some DGS, along with DLS for developed small value and unlike most here, even DES for my U.S. small value exposure.

Hopefully WisdomTree gets a little more competitive with their expense ratios. It has limited how much I am willing to put in the funds. I get the rest of my desired international small cap exposure through VSS (Vanguard FTSE All-World ex-US Small-Cap ETF).

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Re: DGS: Own it? Opinions on it?

Post by livesoft » Sat Oct 13, 2018 5:33 am

I own DGS and DLS. I'm not sure what you mean by opinion.

DGS is the worst performer in my portfolio for 2018, but has been one of the best in past years. I like the asset niche that it fulfills, but it can be terribly volatile, though not so much this year. It is a decent ETF to use for my RBD strategy, so I am not afraid to buy it and to sell it in a short period of time. It is a free trade at 3 of my brokers.
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Re: DGS: Own it? Opinions on it?

Post by gclancer » Sat Oct 13, 2018 5:34 am

sillysaver wrote:
Fri Oct 12, 2018 4:47 pm
I'm not going crazy with tilting but this is a good option.
I’m getting a tad over-tilted at this point. I’ve “tactically rebalanced” into DGS twice in the last month (failed at calling the bottom both times). I realize this is not Boglehead-approved, but at the margins it adds some spice to life (but I officially have to stop tactically rebalancing lest my emerging market exposure goes beyond the “margins”).

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Re: DGS: Own it? Opinions on it?

Post by AlohaJoe » Sat Oct 13, 2018 5:44 am

KJVanguard wrote:
Fri Oct 12, 2018 4:35 pm
but getting them to drink the Kool Aid that makes one believe in a small value premium seems unlikely for the powers that be at Vanguard.
Vanguard has small value funds.

They "believe" in it. Or at least, they believe people will buy it. Vanguard sells lots of things. I'm not sure they "believe" all of them.

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Re: DGS: Own it? Opinions on it?

Post by sillysaver » Sat Oct 13, 2018 8:16 am

livesoft wrote:
Sat Oct 13, 2018 5:33 am
It is a free trade at 3 of my brokers.
Which ones?

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Re: DGS: Own it? Opinions on it?

Post by garlandwhizzer » Sat Oct 13, 2018 12:45 pm

Those who want a fund with exposure to the EM SC space have limited choices unless they have access to DFA which has a EM SCV fund. I am aware of 3 options: DGS, EWX, and EEMS, all of which have performed similarly. DGS, using a dividend strategy, in theory tends more toward value/low vol than the others, but looking at performance graphs of 1, 3, 5, 10 yr they're all very similar. I own DGS but its appeal has been more theoretical than real while I've held it.

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whodidntante
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Re: DGS: Own it? Opinions on it?

Post by whodidntante » Sat Oct 13, 2018 12:47 pm

I've owned it a few times, and each time I ended up TLH'ing out of it. It's fine and doesn't really have a competitor but the ER is high.

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Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by Alexa9 » Sat Oct 13, 2018 12:59 pm

Seems like the only alternative to DFA and a mediocre one (dividend play rather than pure value, higher ER). I'd somewhat rather use VSS. Surprising there aren't more options with all the kooky ETFs out there.

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Re: DGS: Own it? Opinions on it?

Post by livesoft » Sat Oct 13, 2018 1:27 pm

sillysaver wrote:
Sat Oct 13, 2018 8:16 am
livesoft wrote:
Sat Oct 13, 2018 5:33 am
It is a free trade at 3 of my brokers.
Which ones?
WellsTrade, TDAmeritrade, and I think Vanguard
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KJVanguard
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Re: DGS: Own it? Opinions on it?

Post by KJVanguard » Sat Oct 13, 2018 4:02 pm

AlohaJoe wrote:
Sat Oct 13, 2018 5:44 am
KJVanguard wrote:
Fri Oct 12, 2018 4:35 pm
but getting them to drink the Kool Aid that makes one believe in a small value premium seems unlikely for the powers that be at Vanguard.
Vanguard has small value funds.

They "believe" in it. Or at least, they believe people will buy it. Vanguard sells lots of things. I'm not sure they "believe" all of them.
With a median market cap of $3.9B Small Cap Value Index isn't very small, nor is it very "valuey." DFA would view it as Mid Cap & rather "Growthy." None of their value funds are deep value like DFA.

Well, they don't believe in small value enough to give us a small value international fund, as one example of a fund many on this board including me would like. Now DFA it a true believer in such funds. Us retail investors have to hold our nose and pay Wisdom Tree expenses.

I am not too sure how much Vanguard really believes in actively managed funds, but you're right that they offer them because they sell. I very much doubt they believe in sector funds either though they do offer various sector ETFs. They also offer an International (Large Cap) Dividend fund because it evidently sells too. I would buy that fund if it was International Small-Cap Dividend, but Vanguard has a mega-cap fetish.

Overall I think Vanguard tends to believe in much of what they offer. They don't offer funds that are truly ridiculous as many firms do simply because you can sell lunacy (for a nice profit). I'm confident Vanguard won't ever offer a 3X inverse silver fund simply because some folks actually buy such crazy things.

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Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by KJVanguard » Sat Oct 13, 2018 4:03 pm

Alexa9 wrote:
Sat Oct 13, 2018 12:59 pm
Seems like the only alternative to DFA and a mediocre one (dividend play rather than pure value, higher ER). I'd somewhat rather use VSS. Surprising there aren't more options with all the kooky ETFs out there.
I do use VSS as well. Actually I own quite a bit of VSS.

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Re: DGS: Own it? Opinions on it?

Post by KJVanguard » Sat Oct 13, 2018 5:05 pm

whodidntante wrote:
Sat Oct 13, 2018 12:47 pm
It's fine and doesn't really have a competitor but the ER is high.
Yeah, the expenses bother me too. Really the only fault I can find with it. Once you get used to Vanguard everything else looks way too expensive. Expenses are the only thing we can control and I fear that a small value tilt may not in the long run be able to outperform the much cheaper Vanguard EM fund that's 0.14%. Hell, even before expenses small & value may underperform -- my crystal ball doesn't work.

Early this year I sold FRN (a Frontier Markets EFT) in part because I didn't want to pay a whopping 70 basis points. I went with the 14 points of Vanguard EM as an alternative. I also felt FRN was too concentrated in its top holdings (and didn't have all that many holdings in grand total). I assumed Vanguard EM would be lower risk than FRN over time, and Vanguard has a much lower ER which is the only certainty.

Above EWX & EEMS were suggested alternatives to DGS, both small cap (but no value tilt). If I'm going to pay over 60 bps, I would really like them to toss in a value tilt to give me more for my ER. Dividends are not value as defined by DFA, but they tend to lead to much the same result. My DGS is in IRAs, so tax efficiency of a dividend fund doesn't matter.

I will have to wait decades to see if DGS was worth it or if Vanguard EM would have been better (or if both stunk, and I should have gone with Total International or VSS).

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Re: DGS: Own it? Opinions on it?

Post by AlohaJoe » Sat Oct 13, 2018 9:45 pm

KJVanguard wrote:
Sat Oct 13, 2018 4:02 pm
With a median market cap of $3.9B Small Cap Value Index isn't very small, nor is it very "valuey." DFA would view it as Mid Cap & rather "Growthy." None of their value funds are deep value like DFA.
VIOV has a median market cap of $1.7 billion. And more importantly its SMB is 0.79. The HML is 0.40, making it in no way "growthy".
Well, they don't believe in small value enough to give us a small value international fund
I don't see why someone would make that assumption. My guess is that Vanguard operates like a business and puts out funds that they think will sell to their customers and is hesitant to offer funds that won't sell, regardless of their academic or intellectual merit. VIOV only has $430 million in AUM after nearly 5 years. The mutual fund class only has $30 million in AUM. Presumably international small cap would have even lower AUM. Maybe not even $100 million combined, given the strong US bias of US investors.
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Re: DGS: Own it? Opinions on it?

Post by fennewaldaj » Sat Oct 13, 2018 9:52 pm

AlohaJoe wrote:
Sat Oct 13, 2018 9:45 pm
KJVanguard wrote:
Sat Oct 13, 2018 4:02 pm
With a median market cap of $3.9B Small Cap Value Index isn't very small, nor is it very "valuey." DFA would view it as Mid Cap & rather "Growthy." None of their value funds are deep value like DFA.
VIOV has a median market cap of $1.7 billion. And more importantly its SMB is 0.79. The HMB is 0.40, making it in no way "growthy".
Well, they don't believe in small value enough to give us a small value international fund
I don't see why someone would make that assumption. My guess is that Vanguard operates like a business and puts out funds that they think will sell to their customers and is hesitant to offer funds that won't sell, regardless of their academic or intellectual merit. VIOV only has $430 million in AUM after nearly 5 years. The mutual fund class only has $30 million in AUM. Presumably international small cap would have even lower AUM. Maybe not even $100 million combined, given the strong US bias of US investors.
Their international small blend fund (VSS) is fairly popular though (~6B in assets between all share classes). I suspect an international small value fund would do alright.

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Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by 3504PIR » Sat Oct 13, 2018 11:58 pm

I love dividends, and appreciate that my views on them run contrary to most BHs. That being said, I would never buy a small cap fund or stock that had a dividend or dividend focus. Mature companies paying a dividend is fine, given a reasonable payout ratio measured against earnings. Small cap issues should solely be focusing on growth. If they are paying a dividend, then not only is that dividend risky, it hinders growth significantly. That may be one reason for its lagging performance.

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Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by typical.investor » Sun Oct 14, 2018 12:06 am

3504PIR wrote:
Sat Oct 13, 2018 11:58 pm
I love dividends, and appreciate that my views on them run contrary to most BHs. That being said, I would never buy a small cap fund or stock that had a dividend or dividend focus. Mature companies paying a dividend is fine, given a reasonable payout ratio measured against earnings. Small cap issues should solely be focusing on growth. If they are paying a dividend, then not only is that dividend risky, it hinders growth significantly. That may be one reason for its lagging performance.
I suppose.

One reason I chose DGS was the dividends. My concern with EM (especially smaller companies) was fraud and I thought that the dividend was at least a tangible measure. But I do hold EWX which is market cap weighted too.

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Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by Longtermgrowth » Sun Oct 14, 2018 12:33 am

3504PIR wrote:
Sat Oct 13, 2018 11:58 pm
I love dividends, and appreciate that my views on them run contrary to most BHs. That being said, I would never buy a small cap fund or stock that had a dividend or dividend focus. Mature companies paying a dividend is fine, given a reasonable payout ratio measured against earnings. Small cap issues should solely be focusing on growth. If they are paying a dividend, then not only is that dividend risky, it hinders growth significantly. That may be one reason for its lagging performance.
I don't know about that. Would probably end up completely in the small growth side of the morningstar style box if taking that view to the extreme and filtering for no dividends.

If it's such a bad way to invest in small cap value stocks, Paul Merriman wouldn't have DLS listed as best in class ETF for developed small value. He has also recommended DES in the past.

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Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by 3504PIR » Sun Oct 14, 2018 12:37 am

Longtermgrowth wrote:
Sun Oct 14, 2018 12:33 am
3504PIR wrote:
Sat Oct 13, 2018 11:58 pm
I love dividends, and appreciate that my views on them run contrary to most BHs. That being said, I would never buy a small cap fund or stock that had a dividend or dividend focus. Mature companies paying a dividend is fine, given a reasonable payout ratio measured against earnings. Small cap issues should solely be focusing on growth. If they are paying a dividend, then not only is that dividend risky, it hinders growth significantly. That may be one reason for its lagging performance.
I don't know about that. Would probably end up completely in the small growth side of the morningstar style box if taking that view to the extreme and filtering for no dividends.

If it's such a bad way to invest in small cap value stocks, Paul Merriman wouldn't have DLS listed as best in class ETF for developed small value. He has also recommended DES in the past.
Fair enough. I don’t know specifics about the fund. I was just stating my thought on small caps and dividends in general.

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Re: DGS: Own it? Opinions on it?

Post by Theoretical » Sun Oct 14, 2018 4:47 am

KJVanguard wrote:
Sat Oct 13, 2018 5:05 pm
whodidntante wrote:
Sat Oct 13, 2018 12:47 pm
It's fine and doesn't really have a competitor but the ER is high.
Yeah, the expenses bother me too. Really the only fault I can find with it. Once you get used to Vanguard everything else looks way too expensive. Expenses are the only thing we can control and I fear that a small value tilt may not in the long run be able to outperform the much cheaper Vanguard EM fund that's 0.14%. Hell, even before expenses small & value may underperform -- my crystal ball doesn't work.

Early this year I sold FRN (a Frontier Markets EFT) in part because I didn't want to pay a whopping 70 basis points. I went with the 14 points of Vanguard EM as an alternative. I also felt FRN was too concentrated in its top holdings (and didn't have all that many holdings in grand total). I assumed Vanguard EM would be lower risk than FRN over time, and Vanguard has a much lower ER which is the only certainty.

Above EWX & EEMS were suggested alternatives to DGS, both small cap (but no value tilt). If I'm going to pay over 60 bps, I would really like them to toss in a value tilt to give me more for my ER. Dividends are not value as defined by DFA, but they tend to lead to much the same result. My DGS is in IRAs, so tax efficiency of a dividend fund doesn't matter.

I will have to wait decades to see if DGS was worth it or if Vanguard EM would have been better (or if both stunk, and I should have gone with Total International or VSS).
One note about EWX and EEMS is that while they don't have the inherent value tilt of DGS, they make money hand over fist on securities lending that makes up for the ER. EWX is notoriously tax inefficient, but can even get a negative expense ratio. EEMS is tax efficient and also makes tons of money on the lending. WisdomTree does less of it, so the effective ER is closer to .4-.45 for them

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Re: DGS: Own it? Opinions on it?

Post by KJVanguard » Sun Oct 14, 2018 12:14 pm

Theoretical wrote:
Sun Oct 14, 2018 4:47 am
One note about EWX and EEMS is that while they don't have the inherent value tilt of DGS, they make money hand over fist on securities lending that makes up for the ER. EWX is notoriously tax inefficient, but can even get a negative expense ratio. EEMS is tax efficient and also makes tons of money on the lending. WisdomTree does less of it, so the effective ER is closer to .4-.45 for them
Thanks for that note. I wonder why Wisdom tree does less lending? I would have expected every fund to lend securities up to the legal limit of lending.

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Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by KJVanguard » Sun Oct 14, 2018 12:21 pm

typical.investor wrote:
Sun Oct 14, 2018 12:06 am
One reason I chose DGS was the dividends. My concern with EM (especially smaller companies) was fraud and I thought that the dividend was at least a tangible measure.
I originally bought DGS because I liked a small value tilt to EM.

It was later that I thought about dividends being a tangible measure. I remember my late father's World Com going from $22,000 to $Zero due to their fraud that even the SEC failed to catch. Proof you can pull off the biggest accounting fraud in history even right under the nose of the SEC. You can fake profits -- and they did -- but nobody can fake a cash dividend.

If not for the income tax, it would be optimal for all companies to pay out substantially all profits as dividends. It's clear that companies do NOT do well with the way they invest retained earnings, regularly investing in projects the market would never give a thumbs up to.

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Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by KJVanguard » Sun Oct 14, 2018 12:23 pm

KJVanguard wrote:
Sun Oct 14, 2018 12:21 pm
typical.investor wrote:
Sun Oct 14, 2018 12:06 am
One reason I chose DGS was the dividends. My concern with EM (especially smaller companies) was fraud and I thought that the dividend was at least a tangible measure.
I originally bought DGS because I liked a small value tilt to EM.

It was later that I thought about dividends being a tangible measure. I remember my late father's World Com going from $22,000 to $Zero due to their fraud that even the SEC failed to catch. Proof you can pull off the biggest accounting fraud in history even right under the nose of the SEC. You can fake profits -- and they did -- but nobody can fake a cash dividend.

If not for the income tax, it would be optimal for all companies to pay out substantially all profits as dividends. It's clear that companies do NOT do well with the way they invest retained earnings, regularly investing in projects the market would never give a thumbs up to.
...and I had to accept dividends as my measure of value since there is no retail EM small value fund. EM SV will only be found at DFA.

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Re: DGS: Own it? Opinions on it?

Post by whodidntante » Sun Oct 14, 2018 12:31 pm

Theoretical wrote:
Sun Oct 14, 2018 4:47 am
One note about EWX and EEMS is that while they don't have the inherent value tilt of DGS, they make money hand over fist on securities lending that makes up for the ER.
EEMS made $906k in securities lending revenue in 2017, versus expenses of 1.3 million.

https://www.ishares.com/us/library/stre ... -08-31.pdf

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Re: DGS: Own it? Opinions on it?

Post by Longtermgrowth » Tue Oct 16, 2018 4:51 pm

Theoretical wrote:
Sun Oct 14, 2018 4:47 am
One note about EWX and EEMS is that while they don't have the inherent value tilt of DGS, they make money hand over fist on securities lending that makes up for the ER. EWX is notoriously tax inefficient, but can even get a negative expense ratio. EEMS is tax efficient and also makes tons of money on the lending. WisdomTree does less of it, so the effective ER is closer to .4-.45 for them
I was just looking at "Median Tracking Difference (12 Mo)" on ETF.com, and was surprised to see that number, -0.80%, currently exceeds DGS' ER.
I then looked at EWX, and that number is currently -0.04%, much less than the funds 0.65% ER: https://www.etf.com/EWX#efficiency
It would be nice if they included that info for more than just the past 12 months.

This is a big reason I like VSS. It has positive tracking, paying us to hold it after securities lending revenue.

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