Many investors lack adequate international diversification in their portfolios. One way to ameliorate that situation is with dividend stocks and exchange traded funds, such as the WisdomTree International Hedged Quality Dividend Growth Fund (NYSEArca: IHDG).
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.
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 WisdomTree International Quality Dividend Growth Index selects 300 companies based on a combination of trailing three-year profitability and future growth expectations,” said WisdomTree in a recent note. “Constituents are weighted by cash dividends paid, tilting the Index toward larger companies that pay greater cash dividends. Again, the factor loadings below help confirm our intuition that the Index offers a high exposure to the quality factor (0.27).”
Interested In IHDG ETF
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.
IHDG’s quality tilt could prove beneficial for long-term investors.
“Quality tends to performs well during market turbulence, when investors favor companies with high profits and strong balance sheets that are better positioned to withstand a slowdown—just the time when smaller companies are underperforming,” said WisdomTree. “Over the past 30 years, the correlation of these two factors in developed ex-U.S. markets has been -0.43.”
IHDG is also an ideal consideration for investors looking to reduce currency risk within their portfolios.
“Many asset allocators spend their time thinking about their equity exposures and then figure currency exposures will be a wash in the long run,” said WisdomTree. “While we don’t know if the currency exposure will be a headwind or tailwind going forward, our research has shown that taking on currency risk within broad international equity allocations has consistently increased risk.”
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