Broadly speaking, last year was a rough one for developed market stocks outside of the U.S. with the iShares MSCI EAFE ETF (EFA) and the Vanguard FTSE Developed Markets ETF (VEA) each falling about 6%.
While valuations on a plethora of ex-U.S. developed market bourses look favorable compared to the S&P 500, investors looking for ex-U.S. exposure should consider the advantages of mitigating volatility while getting compensated for waiting on an EAFE rebound. [Tread Carefully With International ETFs]
The WisdomTree DEFA Fund (NYSEArca: DWM) is one way to position for an EAFE rebound while getting compensated for the risk. DWM, which debuted in June 2006, tries to reflect the performance of the WisdomTree Dividend Index of Europe, Far East Asia and Australasia Index, which follows a fundamentally weighted methodology based on the performance of dividend-paying companies in developed EFEA and weights components based on annual cash dividends paid.
Proving that dividends make a big difference with foreign stocks just as they do in the U.S., DWM fel 4.9% last year. Of course, that is nothing to brag about, but that is still better than the 6% lost by EFA and VEA. [International Dividend ETF Ideas]
DWM’s underlying index had a dividend yield of almost 4.4% as of Jan. 2 compared to a trailing 12-month yield of about 3.5% for the MSCI EAFE Index. Although EAFE stocks are discounted relative to the S&P 500, the MSCI EAFE Index trades at nearly 16 times earnings while DWM’s index has a P/E below 15.
Japan, DWM’s second-largest country weight, has recently started showing signs of dividend growth, but DWM’s true dividend growth potential comes from the U.K. and Australia. Two of the best dividend growth markets outside of the U.S., the U.K. and Australia are DWM’s largest and third-largest country weights, combining for 31.3% of the ETF’s weight.
In 2013, the U.K. accounted for 11% of global dividends. From 2012 to 2013, Australian dividends, in aggregate, doubled.
Ex-U.K., European dividends have risen 8% since 2009, indicating the continent has the potential to deliver robust payout growth going forward. Ex-U.K., European companies paid over $153 billion in second-quarter dividends, representing 18.2% year-over-year growth.
German companies are leading European dividend growth while France remains the region’s largest dividend payer. Ten Eurozone nations combine for over 30% of DWM’s weight. Four other non-Eurozone members, including dependable dividend growth destination Switzerland, combine for 15% of DWM’s, giving the ETF more than adequate leverage to accelerating European payout growth. [The Right ETFs for Rising European Dividends]
WisdomTree DEFA Fund