Dodge High Beta With These Global ETFs
Market rallies often have at least a few doubters and plenty of late arrivals to the party. Investors that fall into either category do have some options, though, including highly popular low volatility ETFs.
However, conventional wisdom holds that those looking to skirt volatility should also look to avoid international equities. Although this may surprise some investors, there several compelling options among global ETFs that have fairly low betas when measured against the S&P 500. In fact, some of these ETFs already rank among 2013's top performers.
As WisdomTree Research Director Jeremy Schwartz points out in a new research note, currency hedging has been a prominent theme in 2013. That much is highlighted by the astronomical asset growth of the WisdomTree Japan Hedged Equity Fund (NYSE: DXJ).
The assertion is also fortified by the returns offered by DXJ and some comparable funds.
Year-to-date, DXJ has gained over 16 percent. The WisdomTree Europe Hedged Equity Fund (NYSE: HEDJ) has also been solid, at least as far Europe ETFs go. HEDJ is up 5.7 percent year-to-date and has seen decent inflows since last August when it converted to hedged play on European dividend payers with a euro hedge.
DXJ and HEDJ have betas of 0.66 and 0.71, respectively, according to WisdomTree data. DXJ's beta of 0.66 is barely higher than what the Consumer Staples Select Sector SPDR (NYSE: XLP) sports. XLP's beta is 0.63, according to State Street data.
Another low-beta ETF option for investors might come as a surprise given its focus on small-caps, that being the WisdomTree Japan SmallCap Dividend Fund (NYSE: DFJ). DFJ and its rival Japan small-cap ETFs have have followed DXJ higher as the yen has weakened.
Actually, over the past month, DFJ has established a leadership position among Japan ETFs. The fund has gained 9.5 percent over that time, making it one of the better ways to have played Japan since mid-February. Despite the small-cap bias, DFJ has a beta of just 0.36 against the S&P 500.
The inclusion of the WisdomTree Middle East Dividend Fund (NASDAQ: GULF) is potentially the real surprise here, but the ETF has the same beta as the Consumer Staples Select Sector SPDR.
Investing in the Middle East does expose investors to geopolitical volatility, but GULF allocates a combined 63 percent of its weight to the United Arab Emirates and Qatar, two of the region's more stable nations.
Additionally, investors are compensated for the perceived risks with GULF as the ETF has a 30-day SEC yield of 4.18 percent, according to WisdomTree data.
Worth noting is the fact that most of GULF's country allocations have frontier markets designation. While that may imply a higher level of volatility than what investors get with emerging markets, frontier markets offer historically low correlations to U.S. stocks, giving investors the advantage of some upside potential should the S&P 500 decline.
GULF "offers strong diversification potential relative to developed markets in that it is exposed to many factors unique to that region of the world," said Schwartz.
GULF has returned more than nine percent this year.
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