The Right International Dividend ETF Right Now
As international stocks, both developed and emerging markets, have flailed in recent months, the best that can be said of some international-dividend exchange-traded funds is that these funds have only been less bad than their counterparts that are not dedicated dividend ETFs.
The good news is there have been a few international dividend ETFs that have stood firm, indicating that if investors decide to return to ex-U.S. equities in a big way, these funds could become leaders. Put the WisdomTree International Hedged Dividend Growth Fund (WisdomTree Trust (NYSE: IHDG)) in the more positive group.
The Fund And Her Index
The WisdomTree International Hedged Dividend Growth Fund is up about two-thirds of a percent over the past three months. Not a jaw-dropping showing, but still solid when acknowledging the laggard performances turned in by an array of international equity ETFs. IHDG, which has needed just 19 months of trading to rake in over $495 million in assets under management, tracks the WisdomTree International Hedged Quality Dividend Growth Index (WTIDGH).
That currency hedged benchmark “is comprised of the top 300 companies from the WisdomTree DEFA Index with the best combined rank of growth and quality factors. The growth factor ranking is based on long-term earnings growth expectations, while the quality factor ranking is based on three year historical averages for return on equity and return on assets,” according to WisdomTree, the fifth-largest U.S. ETF issuer.
Speaking of being solid, the WisdomTree International Hedged Quality Dividend Growth Index was WisdomTree's second-best index during the third quarter.
“The WisdomTree International Hedged Quality Dividend Growth Index (Int. Hedged Quality Dividend Growth) was the next best. It’s notable that this Index had an exposure of fewer than 50 basis points to the Energy sector, and it also mitigates exposure to movements of the U.S. dollar versus its underlying mix of 12 currencies,” said WisdomTree in a note out Wednesday.
IHDG levers to investors to the theme of growing Japanese dividends. Previously stingy, but cash-rich, Japanese companies are boosting dividends and buybacks at a rapid pace by that country's historically lethargic standards for shareholder rewards.
Switzerland, perhaps the steadiest dividend growth market in continental Europe, is IHDG's third-largest country. Combined, the UK, Japan and Switzerland are 43.3 percent of the ETF's weight.
The Fund’s Advantage
Though neither IHDG's currency hedge nor its dividend growth emphasis should imply the ETF is immune from downturns in international markets, it is notable that the fund is up 5.2 percent year-to-date compared to a loss of almost 1.1 percent by the MSCI EAFE Index.
Bolstering the case for IHDG for the remainder of 2015 is the potential for the Bank of Japan to add to its already massive monetary stimulus program.
“We believe it is possible we will see coordinated action from the BOJ and the fiscal side in November and therefore think that Japan exposures should remain in focus—whether from a sector or broader-based approach,” said WisdomTree.
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