Royce's, WisdomTree's Secret Fund Formula

Many large-cap funds hold dividend-paying stocks to protect against losses in downturns, but few small-cap funds focus on dividends. Portfolio managers prefer small companies that reinvest in their businesses instead of distributing cash to shareholders.

A handful of small-cap funds take a different approach, only buying dividend-paying stocks. During the meltdown of the past year, the dividend strategy proved rewarding, enabling those funds to outdo their benchmarks.

One proponent of dividend investing is Jack Fockler, a managing director at Royce Funds who oversees Royce Total Return(RYTRX Quote), a small-cap dividend specialist. "Dividend stocks tend to outperform in flat and down markets," says Fockler. ...