As the universe of dividend exchange traded funds expands, new funds are offering increasingly tactical approaches.
One new dividend ETF, the WisdomTree International Hedged Dividend Growth Fund (NYSEArca: IHDG), is a combination play on two themes that have soared to prominence in recent years: Dividend growth and currency hedging.
IHDG, which carries an annual expense ratio of 0.58%, will track the WisdomTree International Hedged Dividend Growth Index (WTIDGH). The fund is just a week old, but its age should not be a deterrent to investors. Especially not when the possibility of a stronger U.S. dollar is rising. [Dollar ETFs Could Surge]
The WisdomTree International Hedged Dividend Growth Index had a dividend yield of 3.14% as of May 5, affirming the notion that higher yields are often available on foreign stocks than U.S. equivalents.
That solid yield comes by way of a country lineup that includes a combined 35% weight to the U.K. and Australia. Australian dividends are expected to grow this year after firms there paid $40.3 billion in dividends last year. [Remember Australian Dividends]
U.K. dividend growth has been impressive as well. British listed companies paid $102. 1 billion in dividends last year, and since 2009 have paid roughly $441 billion,” according to the Independent.
Overall, IHDG has exposure to 20 currencies with 12 different currencies. Nearly a quarter of the new ETF’s country weight goes to Eurozone nations, underscoring the fund’s utility as a winner if and when the euro declines. [ETFs for ECB Easing]
Alone, that is a vital point because European equities have historically performed best when the region’s currencies are falling and it is widely expected that the European Central Bank will soon engage in quantitative easing.
The Bank of Japan and Reserve Bank of Australia also currently have easing biases. Japan and Australia combine for nearly 22% of IHDG’s weight.
While BoJ, the ECB and RBA have easing biases, the Federal Reserve has telegraphed its tightening bias by tapering quantitative easing. That could open the door to a significant rally for the greenback, boosting the allure of the Australian, European and Japanese exporters found among IHDG’s nearly 200 holdings.
“If the U.S. Federal Reserve increases interest rates before the European Central Bank (ECB) or the Bank of Japan (BOJ), there could potentially be a time in the next two years when U.S. investors are paid the relative interest rate differentials to hedge foreign currencies,” said WisdomTree Research Director Jeremy Schwartz in a note.
IHDG Top-10 Holdings
Table Courtesy: WisdomTree