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This New Hedged Global ETF Meets the Demand of Time

Zacks Equity Research

It is in years like 2015 that the spotlight falls on the hedged global investing strategy. The world economy is presently mulling over two starkly different policy tools. While the biggest economy, the U.S., is planning for a tightening, other developed nations are turning their loose policies to ultra-loose.

Agreed, the recent soft job data put off the rate hike speculations to a large extent this year, but this hardly dampened the greenback. The U.S. currency is still stronger despite bets over the imminent Fed lift-off subsiding. The U.S. dollar is 13.5% stronger than euro in the last one-year timeframe, trading 12.3% higher than yen and 24.4% above the Australian dollar (as of October 6, 2015).

This makes the case for hedged global ETF investing stronger. Moreover, the wave of easy money polices across the globe, be it in Europe or Asia, has brightened the appeal for dividend investing lately. Several nations are resorting to further easing as growth, investments and consumer demand have failed to exhibit sustained recovery so far in the year.

Though the Fed is aiming policy normalization later this year or early next year, the modest U.S. growth momentum indicates a slower rate hike trajectory in the future. All these will likely keep bond yields at check globally. As a result, investors looking for steady current income might shift their focus to high dividend global stocks (read: No Imminent Lift Off? Time for These Dividend ETFs).  

It is this economic backdrop that can make the new ETF – the SPDR S&P International Dividend Currency Hedged ETF (HDWX) – a star performer.  

HDWX in Detail

The fund is nothing but the currency-hedged version of an already popular fund SPDR S&P International Dividend ETF (DWX) and follows the S&P International Dividend Opportunities USD hedged Index (read: 5 Red Hot Dividend ETFs Yielding 5% or More).

In total, the underlying fund DWX holds 119 high-yielding securities with none holding more than 3.36% of assets. Fortescue Metals, National Grid plc and Berkeley Group are top three holdings. All stocks need to deliver positive 3-year earnings growth and profitability, as calculated by positive earnings per share before extraordinary items over the last 12-month period.

Financials and Utilities take the top two spots with each accounting for about one-fourth share, followed by Telecom (15.9%) and Energy (14.7%). Australian firms dominate the returns at 23.2% while United Kingdom and Canada make up for 17.4% and 10% share, respectively (see: all the Broad Developed World ETFs here).

From a market cap look, mid caps and large caps combine to make up for 88%, leaving little room for the small caps. The fund has amassed about $4 million of assets within less than one month of its launch. It charges 48 bps in annual fees. It has an annual dividend yield of 6.67% (as of October 6, 2015) and added about 5% the same day.

Can It Continue to See Success?

Focus on dividends and hedging technique in the global equities ETF space is no longer a fresh idea as individually there are plenty of similar options. Products like PowerShares International Dividend Achievers ETF (PID) and DJ Global Select Dividend Index Fund (FGD) have already accumulated considerable investor wealth in the dividend ETFs space and could pose as threats to the tenderfoot.

However, taking both factors – dividend payments and currency-hedging – into consideration, the list gets shortened. Still, HDWX might have to compete with similarly-themed products like Global ex-U.S. Hedged Dividend Fund (DXUS), db X-trackers MSCI All World ex US Hedged Equity Fund (DBAW) and Deutsche X-trackers MSCI EMU Hedged Equity ETF (DBEZ). The trio charges in the range of 40–45 bps in fees. However, like HDWX, none of these are heavily weighted on Australia.

Since commodities bounced back after a muted U.S. job report, heavy presence of the commodity-rich Australia in the portfolio showered ample gains on HDWX. Once this boom fizzles out, HDWX may not be able to sustain the momentum. Still, investors can ride on this new ETF as long as the trend is your friend.

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