With the U.K., Sweden, Germany and Switzerland combing for about 58% of DFE’s weight, there are valuation concerns because of the premium investors pay to gain access to Europe’s steadier hands.
“I do worry about the fund valuation as a whole given its large run up. Per the WisdomTree website, it’s now trading at a 26 P/E and a 3.67 yield. So it’s not cheap like when we bought it,” said Murray. “That said, the trade has seemed to morph from a value play in 2011 to a growth play in 2013 and that may explain the p/e expansion. Investors are seeing the beginnings of European growth and expect more robust earnings growth going forward, so they are willing to pay more today. If Europe is in the early stages of growth, investors are going to look for companies that are leveraged to that .”
There is compensation for DFE’s rising valuation. Murray favors cyclical sectors and sees room for European dividends to grow.
“I think in general dividends still have room to grow. Even with its great price performance, DFE still has a decent yield north of 3%,” he said. “In general we are favoring cyclical sectors both domestically and globally as we think global growth will continue to strengthen regardless of stress in EM.”
Industrials and consumer discretionary names combine for almost 41% of DFE’s weight.
DFE Country Allocation
