Core Viewpoint - Small-cap value has historically been a strong investment strategy, but recent trends show that riskier small stocks have outperformed small-cap value indexes over the past three years, with the Russell 2000 Index exceeding its value counterpart by over 800 basis points. However, experts predict a potential resurgence for small-cap value by 2026, which could benefit ETFs like the WisdomTree U.S. SmallCap Dividend Fund (DES) [2][3]. Group 1: Small-Cap Value Performance - The Russell 2000 Index has outperformed its value counterpart by more than 800 basis points over the last three years [2]. - Despite recent underperformance, there is optimism for a small-cap value rebound in 2026 [2]. - DES has generated decent returns over the past three years and is positioned to participate in a potential small-cap value recovery [3][4]. Group 2: DES ETF Characteristics - DES, with a market capitalization of $1.86 billion, is not a typical cap-weighted fund; it follows a dividend-weighted index, indicating quality and value traits [4]. - The focus on high-quality, profitable businesses is emphasized as a long-term investment strategy, with metrics like net margins and return on assets being crucial indicators of portfolio quality [5]. - More than a third of Russell 2000 member firms are estimated to be unprofitable, highlighting the potential advantage of investing in DES, which includes firms with better profitability profiles [5][6]. Group 3: Market Sentiment and Valuations - Many financially weak small-caps have seen their valuations rise this year, reflecting a speculative mentality among investors [6]. - The price/sales ratio of profitless stocks has surged from mid-single digits to nearly 20, indicating that investors are paying higher prices based on future earnings potential rather than current profits [7].