In this year’s challenging dividend environment, advisors and investors are reminded of multiple considerations, including the importance of the quality factor and the benefits of global diversification.
However, constructing the right balance of U.S. and international equity income can be tricky. WisdomTree’s Global Dividend Portfolio, a strategy within the firm’s broader suite of model portfolios, is a solid plan for clients seeking reliable equity income with quality leanings.
“This model portfolio seeks to provide capital appreciation and high current dividend income, through a globally diversified set of WisdomTree’s dividend income-oriented equity ETFs. The model strives to deliver dividend income in excess of the global benchmark of equities,” according to WisdomTree.
The WisdomTree Total Dividend Fund (NYSEArca: DTD) is one of the domestic holdings in that portfolio, which includes WisdomTree ETFs and products from other issuers.
DTD “seeks to track the price and yield performance, before fees and expenses, of the WisdomTree U.S. Dividend Index, which is one of the most inclusive indexes of all dividend payers in the U.S. The dividend-weighting mechanism emphasizes the total size of dividend distributions,” according to WisdomTree.
DTD pays a monthly dividend, is a bet on future sources of dividend growth as highlighted by its robust exposure to the financial services and technology sectors. Not only are those of the largest sources of S&P 500 dividend growth over the past several years, but those sectors also provide a buffer for DTD in the event that interest rates rise.
On the model portfolio’s international side, one component is the WisdomTree Dynamic Currency Hedged International Equity Fund (CBOE: DDWM), which helps investors guard against the effects of a strong dollar.
Unlike other popular currency-hedged ETF offerings with a static foreign exchange hedge, the Dynamic Currency Hedged Equity Fund will hedge currency fluctuations in the relative value of the foreign currencies against the USD, ranging from a 0% to 100% hedge based on interest rate differentials, valuations and relative price momentum of the foreign currencies compared to the USD. This may help the so-called dynamic currency-hedged ETF adjust to changes in the dollar ahead.
Even in less volatile periods, correctly predicting the direction the dollar will move against major international currencies is not an easy feat to accomplish. As we continue to digest the diverging global central bank policies and rising uncertainty, international stock investors may want to take a more neutral forex view instead of trying to bet on a definitive up or downtrend in the currency market.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.