A New ETF To Embrace
Many new exchange-traded funds face a problem. That being they are new. In what amounts to nothing more than warped Wall Street wisdom, with wisdom probably not the best word to use there, investors flock to hot IPOs or new stocks, but wait months for new ETFs to gather what they deem to be an appropriate amount of assets before jumping in.
Usual treatment of new ETFs amounts to herd mentality. While there are scores of new ETFs coming to market, plenty of which are not great ideas, there are some investors should consider even though these funds are in their infancy. The WisdomTree International Quality Dividend Growth Fund (BATS: IQDG) could be one of those ETFs.
IQDG, which debuted earlier this month, follows the WisdomTree International Quality Dividend Growth Index (WTIDBG), which marries the growth and quality factors. New York-based WisdomTree Investments, Inc. (NASDAQ: WETF) is the fifth-largest U.S. ETF issuer.
A Closer Look At IQDG
IQDG's underlying index's “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. Companies are weighted in the Index based on annual cash dividends paid,” according to New York-based WisdomTree.
IQDG has a currency hedged counterpart, the WisdomTree International Hedged Quality Dividend Growth Fund (WisdomTree Trust (NYSE: IHDG)), which in just under two years on the market has amassed $744 million in assets under management.
“During a difficult period, both WisdomTree Indexes went down less than both the MSCI EAFE Index and the MSCI EAFE 100% Hedged to USD Index. As can be seen in the chart below, we believe that this was due to the combination of dividend weighting and selecting stocks based on quality and growth characteristics,” said WisdomTree in a recent note.
Country allocations are similar across the two funds. In the case of IQDG, the ETF devotes nearly 44 percent of its geographic exposure to the U.K., Japan and Switzerland.
An almost 14.4 percent weight to Japanese stocks is arguably hefty for an international dividend ETF given Japan's history of low yields and paltry payouts, but it also means IQDG and IHDG are levered to the Japanese dividend growth story. That story has improved considerably in recent years.
“Stepping beyond this universe, both the WisdomTree International Hedged Equity and the WisdomTree International Equity Indexes represent an incremental step—maintaining broad exposure to developed international equities, but weighting them by dividends instead of by market capitalization. In each case, whether with currency exposure or not, an observer would expect less downside performance in a tough market compared to a market capitalization-weighted strategy—exactly what we saw during the first quarter of 2016,” added WisdomTree.
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