Director of Research
05/21/2013Introducing Dividend Growth Indexes Not Reliant on Historical Dividend Trends
There is no question that investors are drawn to the idea of dividend growth—potentially more so today than in the past due to the ongoing stimulative monetary policies of the Federal Reserve (and other central banks around the globe). While there is no way to know with certainty what will happen in the future, we believe that our dividend growth methodology applies a logical framework of analysis to essentially increase the probability of placing greater weight in companies that have the best chance of raising their future dividends.
U.S. Dividend Growth Hits Record High – Will You Capitalize?
While dividend growth of firms in the U.S. has accelerated strongly in recent years, the types of companies driving that growth have changed. We believe that index methodologies focused on dividend growth that has occurred in the past through backward-looking dividend growth screens may not be flexible enough to respond to these changing trends, ultimately having the potential to capture the dividend growers of tomorrow.
Are Investors Under-Allocated to India?
When people think of emerging markets from a single country perspective, it’s quite clear that they think of China first, but beyond that the picture gets much murkier. In our analysis, we examine other emerging markets through the levels of assets tracking the performance of country-specific equity market indexes. Our conclusion is that we believe investors may be under-allocating to India.
The Potential Benefits of International Diversification with Mid- and Small-Cap Dividends
In our last market insight, we discussed one segment of the market that often gets overlooked in the hunt for income-producing asset classes—mid- and small-cap dividend payers in the United States. In this piece, we extend the analysis of dividend-paying stocks by market capitalization segment beyond the United States to developed international markets. We believe the benefits of looking beyond large caps and into mid and small caps are, in many ways, even stronger in the international markets.
The Forgotten Dividend Payers: Mid- & Small-Cap Equities
Income is the story of the day—notably the lack of any reasonable levels of income from such traditional sources as bonds and money market investments. Many investors are looking beyond traditional asset classes for income generation but have forgotten mid- and small-cap dividend paying equities. At WisdomTree, we believe mid- and small-cap dividend payers deserve a larger allocation in most investors’ long-term portfolios—particularly portfolios targeting income strategies.
Asian Equities Valued at a Historically Sweet Spot
There are many reasons to be positive on Asia’s economic growth potential within the coming years. Even after some positive performance, we believe that these stocks are in a “valuation sweet spot” relative to the dividends that they have paid. Additionally, for those looking for potential risk mitigation, we introduce the idea of exposure to Asian debt.
Why We Are Still Bullish on Emerging Market Equities For 2013
Our research shows that the prices of emerging market equities are relatively low, which makes us bullish about the prospects for emerging market equities in 2013. Drilling down further, Morgan Stanley research has showed that emerging market defensive stocks could be relatively expensive compared to their cyclical counterparts. We believe that the current positioning of WTEMHY takes advantage of both of these circumstances.
Are Earnings Peaking? A Study of the November 30, 2012, WisdomTree Earnings Index Rebalance
Every year, WisdomTree screens and rebalances its domestic earnings family of Indexes. This year, we recognize the need to issue our take on a crucial question: Are earnings peaking? While there is no way to truly know the future, within this piece we offer our analysis of the U.S. Earnings Stream and what we believe that data indicates with respect to a potential peak.
Are Dividend-Paying Stocks Expensive?
A popular refrain amongst investors has been: “Are dividend-paying stocks becoming expensive?” We have addressed this question in numerous prior commentaries, but we now employ a fresh approach comparing dividend growth to price appreciation. Ultimately, we believe that an environment supportive of strong dividend growth can also have the potential to be supportive of strong equity performance for dividend-payers.
WisdomTree Caps Sectors Domestically: Mid- and SmallCap Dividend Indexes Become More Diversified
At WisdomTree, our Index construction process depends on continually analyzing such risks as individual security influences, country biases or significant sector concentration. As of the November 30, 2012, Index rebalance, WisdomTree implemented a 25% sector cap on domestic equity Indexes to help mitigate sector concentration risk. We think these caps should enhance Index diversification and make the Indexes more attractive benchmarks for their representative segments of the dividend-paying stock universe.
WisdomTree Dividend Index: Dividends Set New Record on Nearly 16% Growth
WisdomTree’s annual rebalance based on the November 30, 2012 Index screening saw a new, record-high dividend stream, finally surpassing the prior high set on November 30, 2007. A major component of this year’s nearly 16% growth in the dividend stream related to companies—like Apple—initiating payments of regular dividends. Within this piece, we analyze the landscape of dividend growth within U.S. equity markets and how this contributed to sectors increasing or decreasing their weights within certain WisdomTree Dividend Indexes.
Emerging Markets in Focus: Vanguard Changes Benchmark, WisdomTree Hits Five-Year Anniversary
Vanguard shook up the landscape of passive investment vehicles with its announcement of a switch of index providers from MSCI to FTSE for its international and emerging market equity exchange-traded funds (ETFs). We believe that the introduction by Vanguard of the FTSE EM as a new major player in emerging market equity indexes serves as a potential wake-up call, because, as investors begin to question and analyze their emerging market equity exposures, they may also have the opportunity to recognize that alternative approaches to emerging market equity indexes exist.
Adding a Japan Export Revenue Filter to the WisdomTree Japan Hedged Equity Index
We believe Japan-based multinational companies that generate the bulk of their revenues from markets outside of Japan are more likely to benefit from a weakening yen. Companies with a purely Japanese revenue base, on the other hand, are unlikely to benefit from a weakening yen, especially if imported materials are part of their production process. Essentially, while a weakening currency can make exports more attractive for foreign consumers, it can also make imports less attractive as these prices would tend to increase as the currency weakened. It is with this economic reasoning in mind that we have added the selection requirement, to the Index methodology, for Japanese companies to derive less than 80% of revenue from Japan to qualify for Index inclusion.
Examining Dividend Indexes With a “Growth” vs. “Value” Framework
The dividend-paying equity landscape within the U.S. is evolving rapidly, and we believe the concepts of "growth" and "value" can be helpful in categorizing the different types of dividend-focused indexes being created to measure the performance of these stocks. Ultimately, just because an index has a dividend growth screen for determining constituent eligibility does not mean that it will necessarily capture all varieties of dividend growth. Similar to blending the attributes of different value and growth market capitalization-weighted indexes, we believe there could be potential benefits to analyzing the blended attributes of different value and growth dividend-focused indexes.
Why We Believe High-Dividend Sectors Are Not “in a Bubble”
Recently, a hotly debated question has been whether dividend-paying equities might be getting expensive or approaching so-called “bubble” territory. Of the four “high dividend sectors” (Utilities, Telecom, Health Care and Consumer Staples), we believe three of these may be attractively valued, at least relative to the past 20 or so years.
India’s Tax Climate and Government Reforms to Benefit Indian Equities
In 2012, India’s equity markets have performed well compared to the broader MSCI Emerging Markets Index and have provided positive absolute returns so far this year. The WisdomTree India Earnings Index rebalance has taken effect and reweighted securities with an emphasis on those companies that have grown their earnings over the past year. We believe India’s long-term economic growth prospects remain intact and think that the most prudent way to access the Indian equity market is by focusing on companies with strong earnings and fundamentals.
Managing Risk in China's Equity Market
We believe that China’s equity market has the potential to provide compelling opportunities, but traditional market cap-weighted approaches to Chinese equity indexes are currently susceptible to unique concentration risks, namely in Chinese financials. At WisdomTree, we have developed what we believe is a rather unique way to measure the performance of China’s equity market while mitigating what we see as a large potential risk of traditionally market cap-weighted indexes of China’s equities: sector concentration.
Cisco’s 75% Dividend Growth Could Be A Game Changer
As dividend growth continues to be a popular topic in today’s market environment, one question we are often asked is what “screens” WisdomTree (WT) employs to capture dividend growth. Our answer: none. Companies that do not pass dividend growth screens involving significant lengths of time tend to be either new payers or those that previously cut but then reinstated dividends—precisely the types of firms driving dividend growth today.
Why Investors Might Want to Hedge the Euro
Europe has recently been mired in turmoil, and both its equity market and the euro have exhibited uncertainty. However, investors may find that the markets mirror sovereign risks rather than specific company fundamentals, which creates opportunities for those aware of the risks. One of the primary risks for investors remains the currency movements of the euro compared to the U.S. dollar, but we think exporters who can execute in such an environment could benefit from a weakening euro, which may stoke demand for their products in the global market. If this scenario plays out, an investor may be better positioned in a portfolio of dividend-paying equities that derive more than half their revenues beyond Europe while hedging the euro.
Ongoing European Debt Dilemma Still Makes Ex-Financials Strategies Potentially More Attractive
Banking used to be a relatively simple business. Customers would make deposits, banks would make loans, and this interaction would contribute to economic growth. In more recent periods, banks have started operating more like hedge funds, becoming involved in ever more complex assets with increasing amounts of leverage—potentially enhancing returns during positive markets but worsening losses during difficult ones. A recent issue involving financial firms concerns potential manipulations of the LIBOR, a global benchmark rate to which trillions of dollars’ worth of borrowing are tied.
Why a Global Summer of Stimulus Could Boost Emerging Market (“EM”) Asset Prices
During January and February of 2012, policy makers around the world seemed to breathe a collective sigh of relief. Global markets appeared to largely shrug off the immediacy of the troubles in Greece and its repercussions for other debt-plagued European countries. As a result, investors embraced so-called “risky“ assets, like those associated with EM. But the market’s tone started to change in March following weakness in economic data. Investors then sought safety in United States Treasuries and German Bunds as Greece returned to the headlines in May—this time with Spain in tow. Risk sentiment has improved in recent weeks on the heels of positive surprises emerging from the Greek elections, the Spanish bank bailout, and the most recent EU summit. But investors remain very leery, fatigued by the stream of headlines and false dawns.
Analysis of the 2012 WisdomTree Annual Global Dividend Index Rebalance
Over the past decade, the emerging markets (“EM”) have been one of the lone bright spots of economic growth. Additionally, they have been leaders of global dividend growth. However, part of this story changed over the trailing 12 months ending May 31, 2012 (“the period”), the most recent annual screening date for the WisdomTree (“WT”) global dividend Indexes.
A Case for Australian Equities and Bonds
Global portfolio allocations often subdivide assets tied to the “developed world” and the “emerging world.” Strong underlying economic prospects and favorable demographics often attract people to the “emerging markets,” but increased risk associated with these areas may restrict allocations.