Normally, most dividend paying companies are stable, mature companies making these investments good vehicles for greater stability and safety in a volatile environment. Also, the extra fundamental factors like better long-term growth rates, ROE and ROA will help investors get a better selection of stocks in these ETFs.
Also, currency hedging, especially for the Japan fund, appears to be a good strategy when the Fed has started tapering its bond repurchases and Japan has kept its stimulus intact. This will likely make the yen weaker than the greenback, spurring the need for yen hedging (read: Inside the New Currency Hedged ETFs from iShares).
The proposed ETFs do not have any direct competitor due to their unique strategy. However, two dividend products – WisdomTree Europe SmallCap Dividend Fund (DFE) and STOXX European Select Dividend Index Fund (FDD) – could provide some competition to the proposed ETF in the Europe space. FDD and DFE yield 3.51% and 2.25% respectively (as of February 25, 2014).
WisdomTree’s own fund DFE consists of the companies that make up the bottom 25% of the market capitalization of the WisdomTree Europe Dividend Index after the 300 largest companies have been taken away.
On the other hand, the First Trust fund FDD tracks an index that consists of 30 highest dividend-yielding securities across 18 European countries selected from the Dow Jones STOXX 600 Index. DFE and FDD charge 58 and 60 bps in fees, respectively.
Coming to Japan ETFs, the proposed fund will likely vie with its other WisdomTree cousins like Japan Hedged Equity Fund (DXJ) and Japan Small-Cap Fund (DFJ). The dividend yield of DXJ and DFJ presently stand at 2.59% and 2.24% (as of February 25, 2014). The ultra-popular DFJ charges 48 bps in fees while DFJ charges a slightly higher expense ratio of 58 bps.
Given this, the planned funds could be competitive, and especially so for investors seeking a dividend tilt in Japan. The European market appears to be dicey, but with some solid levels of outperformance, the proposed WisdomTree fund in this market could compete too, should it pass regulatory hurdles.
This article is brought to you courtesy of Eric Dutram.