IHDG has a stock selection focus driven by three factors: high return on equity (ROE) and high return on assets (ROA), which are two measures associated with “quality,” and earnings growth expectations.
• As a result of these screens, the methodologies tend to be concentrated in Consumer Staples, Consumer Discretionary, Health Care and Industrials. The two consumer sectors are the largest two sectors in IHDG and combine to represent more than a third of the ETF. Combined with Health Care and Industrials, which each represent more than 15% of the Fund, these four sectors make up over 60% of IHDG. The Fund’s three lowest exposures on a sector basis are to Utilities, Financials and Energy. Utilities and Financials are highly leveraged sectors, and the screen for ROA reduces their exposure.
• An important element to consider is the ultimate cost of hedging, which can be estimated as the weighted average difference in short-term interest rates relative to the United States. For IHDG, this figure is approximately 0.2%, a relatively small cost to hedge these developed international currencies. The four biggest exposures are to the euro (more than a third of the ETF), British pound (almost 20%), Swiss franc (13%) and Japanese yen (9%) as of December 31, 2014.
WisdomTree believes currency-hedged investment strategies are growing in prominence due to shifting policy winds among global central banks. We believe that IHDG represents a potentially beneficial marriage of growth and quality characteristics with this added currency-hedged feature. This type of exposure represents to us an attractive holding for core allocations to developed international stocks.
1All data is as of 12/31/14.
Important Risks Related to this Article
All holdings and sectors are subject to change. There are risks associated with investing, including possible loss of principal. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. To the extent the Fund invests a significant portion of its assets in the securities of companies in a single country or region, it is likely to be impacted by the events or conditions affecting that country or region. Dividends are not guaranteed, and a company currently paying dividends may cease paying dividends at any time.