European equities are showing signs of life and the WisdomTree Europe Quality Dividend Growth Fund (NYSEArca: EUDG) could be one of the stronger ideas for playing that trend while earning reliable equity income.
In the face of rising volatility and a prolonged low-yield environment despite talks of rising rates, investors are giving dividend stocks a second look, and with European economic fundamentals looking better than they have for the best part of a decade, one may consider diversifying with Europe dividend ETF.
“Many of the estimates would have been made earlier in the year, during the height of the coronavirus pandemic, accounting for the low expectations. Information technology stocks have reported the strongest beats, while materials companies have recorded the weakest,” reports Callum Keown for Barron’s. “Despite the earnings beats, initial results point to a year-on-year EPS fall of 38% for the median European stock in the second quarter, Morgan Stanley said—which would make it the worst quarter for European profits on record.”
Like other developed markets, many European markets, both in and out of the Eurozone, are home to major equity benchmarks with higher dividend yields than the S&P 500. The yield disparity between European stocks and bonds has been widening as recent global uncertainty pushed investors out of the equities market and into safe-haven fixed-income assets.
Evaluating EUDG
Factor-based strategies like smart beta ETFs can be used to solve different portfolio needs. For instance, single factors help target exposure to enhance returns or address specific client needs, whereas a multi-factor approach may provide a diversified core equity allocation that leverages the benefits of multiple factors and limit cycle risks associated with individual factors.
EUDG tracks the WisdomTree Europe Dividend Growth Index, “a fundamentally weighted index that measures the performance of dividend-paying common stocks with growth characteristics selected from the WisdomTree DEFA Index,” according to WisdomTree.
Bolstering the case for EUDG, the effective monetary policy response in the face of the coronavirus pandemic is propping up European equities this year.
“Price reaction has been slightly negatively skewed so far. Although it is early days, earnings beats have on average outperformed by 0.4% on the day of results, while EPS misses have underperformed 1.2%,” Barron’s reports, citing Morgan Stanley.
EUDG’s components are weighed by paid dividends, explaining the fund’s emphasis on return on assets and return on equity ensures ample exposure to health care, consumer discretionary and industrial names. EUDG offers investors an avenue to another important European dividend growth market: Switzerland.
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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.
