In an extension of themes that started several years ago, currency hedged and dividend exchange traded funds remain two of the fastest-growing segments of the ETF universe.
Last year, dividend ETFs added over $10 billion in new assets and those with light utilities exposure have been solid performers this year. Underscoring the rising popularity of currency hedged ETFs, the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) and the DeutscheX-trackers MSCI EAFE Hedged Equity Fund (NYSEArca: DBEF) each rank among this year’s top 10 asset-gathering ETFs.
Imagine the potency of combining currency hedging with dividends in one ETF. Thanks to the WisdomTree International Hedged Dividend Growth Fund (NYSEArca: IHDG), investors do not need to imagine such a scenario.
IHDG, which carries an annual expense ratio of 0.58%, tracks the WisdomTree International Hedged Dividend Growth Index (WTIDGH). That index is an offshoot of the WisdomTree DEFA Index. [A Combo ETF Right for the Times]
“The Index 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. Companies are weighted in the Index based on annual cash dividends paid,” according to WisdomTree.
With the U.S. dollar strengthening and a slew of developed market central banks committed to quantitative easing, lower interest rates or, in some cases, negative rates, IHDG’s performance against the MSCI EAFE Index is something to watch. Year-to-date, IHDG has topped the benchmark developed markets index by 130 basis points.
“The WisdomTree International Hedged Dividend Growth Fund (IHDG) has beaten 97% of its 1,515 peers since its inception. We contrast this with the MSCI EAFE Index and the FTSE Developed ex North American Index, which have only beaten 45% and 47% of this peer group, respectively. Both of these indexes have exposure to foreign currency risk, which shows how dramatic currency headwind can be,” said WisdomTree Research Director Jeremy Schwartz in a recent note. [How This International ETF Topped its Peers]
Over a third of IHDG’s geographic weight is dedicated to Eurozone nations with another 41% going to the U.K., Switzerland and Japan. However, the ETF’s hedging costs are tame.