The WisdomTree International Hedged Dividend Growth Fund (NYSEArca:IHDG) targets dividend growers in developed markets, excluding the U.S. and Canada and features a currency hedge that can protect investors in the event the dollar rebounds around developed market currencies.
Low interest rates in the U.S. have sent investors flocking to dividend stocks and exchange traded funds in recent years. With central banks throughout the developed world paring rates and engaging in monetary easing, government bond yields are falling, giving investors good reason to consider international dividend ETFs.
U.S. investors, though, may still be exposed to currency risks ahead, or a strengthening U.S. dollar and depreciating foreign currencies, which could weigh on overall dollar-denominated returns of international investments.
IHDG’s “portfolio targets 300 developed-markets stocks that score high on various measures of quality, including long-term estimated earnings growth, return on equity, and return on assets. The emphasis on these metrics tilts the portfolio toward companies with more-durable competitive advantages and causes the fund to have a growth orientation,” said Morningstar in a recent note.
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.
“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.
IHDG’s holdings are weighted by cash dividends paid, a strategy that can prove useful for investors looking to evaluate the consistency and sustainability of a company’s payouts. Since coming to market just over three years ago, IHDG has topped more traditional ex-US developed market strategies while being slightly less volatile.
“This fund uses a strategy that emphasizes growth over dividend yield. However, it screens for expected earnings growth rather than dividend growth directly. This could pose a risk to the strategy as higher expected earnings don’t necessarily translate into actual dividend payments. Managers may use excess earnings to pay down debt, repurchase shares, or pursue other investment opportunities,” according to Morningstar.
For more on smart beta ETFs, visit our Smart Beta Channel.