• Balancing the Consumer Sectors with the High-Yielding Sectors: It’s interesting that the Dividend Growers had much greater exposure to the Consumer Discretionary and Consumer Staples sectors—10.1% and 12.8% higher, respectively, than the High Dividend Yielders. If economic fundamentals in developed markets improve and rates begin to rise, these are important sectors to be attentive to. On the other hand, the High Dividend Yielders had much greater exposure to Telecommunication Services and Utilities—10.8% and 8.6% higher, respectively, than the Dividend Growers. In the present, lower-yielding environment, exposure to these sectors can be important for potential income generation.
Bringing Valuation into the Discussion
To conclude, we present a simple table showing the valuation characteristics of this blend, its component indexes and how this relates to the MSCI EAFE Index.
Valuation Attributes
For definitions of terms in the chart, please visit our glossary.
In our opinion, the story that stands out is that, as of July 15, the 50–50 blend had a similar P/E ratio, a dividend yield approximately 80 basis points higher and a three-year average return on equity that was approximately 860 basis points higher than the MSCI EAFE Index. While it’s true that the MSCI EAFE Index is the most widely utilized market capitalization-weighted measure of the performance of developed international equities, we believe that this blend combines sector and currency diversification while maintaining a focus on high-quality stocks. This is an attractive combination, in our view, for the current market environment.
1Refers to the U.S. Federal Reserve tapering the amount of its monthly asset purchases.
2Refers to the U.S. Federal Funds Rate, the rate that banks that are members of the Federal Reserve system charge on overnight loans to one another. The Federal Open Market Committee sets this rate. Also referred to as the “policy rate” of the U.S. Federal Reserve.
3Source: Bloomberg, as of 7/15/14.
4Refers to the universe of the WisdomTree International Hedged Dividend Growth Index.
5Refers to the universe of the WisdomTree DEFA Equity Income Index.
6Sources: Bloomberg, Standard & Poor’s, as of 7/15/14.
Important Risks Related to this Article
Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Investments focused in Europe or Japan are increasing the impact of events and developments associated with the region, which can adversely affect performance. Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations. Dividends are not guaranteed and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time. Diversification does not eliminate the risk of experiencing investment losses.