An Update on DGRW, DLN, IHDG and XSOE

Director, Asset Allocation
Follow Jeff Weniger
11/19/2020

As 2020 comes to a close, we thought it would be helpful to provide investors with a quick update on some of our major strategies. 

DGRW – WisdomTree U.S. Quality Dividend Growth Fund – U.S. Large Blend 

Performance: Roughly in line with the S&P 500 since 2013 inception, despite zero exposure to FB, AMZN, NFLX or GOOG1 the whole time.

Notable positives: DGRW is a major Fund in Large Cap Core, with AUM of $4.5 billion. Particularly high exposure to quality stocks, the result of a return on equity (ROE) of 20%, about double the S&P 500’s ROE (11%).

Valuation: Forward price-to-earnings (P/E) = 19.5; Dividend yield = 2.3%. S&P 500 = 24.9; Dividend yield = 1.7%. Focus = quality + value.

Why long term: The original WisdomTree dividend concepts + quality safeguards. Academic research indicates the quality factor can generate both outperformance and risk mitigation relative to the broad market.

Why now: Quality can protect help mitigate losses in down markets. Example: Its NAV outperformed the S&P 500 by 217 basis points (bps) in the COVID-19 crash. 

DLN – WisdomTree U.S. LargeCap Dividend Fund – U.S. Large Value 

Performance: Outperforming value peers and the S&P 500 Value Index in 2020, consistent with prior years. The concept has benefited from the low-rate environment.

Notable positives: A history of buffering downside, beating the S&P 500 five of the last six times the market went down 6% or more. It also beat the S&P 500 Value in 16 of the last 17 such drawdowns since its inception in 2006.

Valuation: P/E (fwd) = 18.8, Dividend yield = 3.2%. S&P 500 Value (P/E)= 19.6, Dividend = 2.9% (vs. 1.7% for S&P 500).

Why long term: Stocks with zero dividend yield beat the market by more than 6% a year in the 10 years to October 2020. Is that sustainable? Jeremy Professor Siegel’s research finds dividend payers beat non-payers by 2% per year from 1957 to 2019.

Why now: DLN could stand to benefit if the economy recovers. If not, it has historically had better experiences in bear markets than the S&P 500 Value Index. In the COVID-19 crash, its NAV outperformed that Index by 142 bps.

IHDG – WisdomTree International Hedged Quality Dividend Growth Fund – Developed Mkt Growth

Performance: Nearly flat this year in a sea of red ink (-1.9% vs. -10.3% for MSCI EAFE).

Notable positives: Light exposure to banks and energy has helped in a shaky economic environment. Risk is cut by hedging foreign currency exposure.

Valuation: P/E (fwd) = 22.7; Dividend yield = 2.5%. MSCI EAFE = 20.7; Dividend = 2.7%. IHDG is particularly high quality (ROE = 16% vs. 5% for MSCI EAFE). This helps temper concerns that overseas equities are inherently risky.

Why long term: The asset class is depressed. Example: MSCI EAFE touched 1999 levels this year. 

Why now: Many overseas companies cut dividends heavier than U.S. firms; reinstatement may be a positive catalyst.

XSOE – WisdomTree Emerging Markets ex-State-Owned Enterprises Fund – Diversified EM – 

Performance: Handily outpacing MSCI Emerging Markets (+12.6% vs. +2.5%) in 2020.

Notable positives: Political push to divest from state-owned enterprises (SOEs) may be of aid relative to other emerging markets mandates. Naturally embraces “future of emerging markets” companies like Alibaba and Tencent, which are 9.0% and 7.0% of the Fund, respectively, as of 11/6/2020. 

Valuation: P/E (fwd) = 22.4; Dividend yield = 1.6%. MSCI EM  P/E = 17.8; Dividend yield = 2.2%. Focus: advantageous growth prospects.

Why long term: P/E spread appears wide, but we cut out low P/E Chinese banks and Russian oil. Non-SOEs = younger firms, not stodgier legacy companies.

Why now: XSOE could defend portfolios from Western political pressure on companies with close government ties.

To see the Morningstar ratings of each of the Funds mentioned in this piece, please go here.

Standardized performance is found here: DGRW, DLN, IHDG, XSOE

Unless otherwise stated, all data as of 11/6/20, from WisdomTree Digital Portfolio Developer.

 

 

1 As of November 11, 2020, none of the Funds mentioned in this blog post hold FB, AMZN, NFLX or GOOG.

Important Risks Related to this Article

Performance is historical and does not guarantee future results. Current performance may be lower or higher than quoted. Investment returns and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.

There are risks associated with investing, including the possible loss of principal. Foreign investing involves currency, political and economic risk. Funds focusing on a single country, sector and/or funds that emphasize investments in smaller companies may experience greater price volatility. Investments in emerging or offshore markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments. Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations. Derivative investments can be volatile, and these investments may be less liquid than other securities, and more sensitive to the effect of varied economic conditions. As IHDG can have a high concentration in some issuers, the Fund can be adversely impacted by changes affecting those issuers. IHDG and XSOE invest in the securities included in, or representative of, their Indexes regardless of their investment merit and the Funds do not attempt to outperform their Indexes or take defensive positions in declining markets. Dividends are not guaranteed, and a company currently paying dividends may cease paying dividends at any time. Diversification does not eliminate the risk of experiencing investment losses. Due to the investment strategy of certain Funds, they may make higher capital gain distributions than other ETFs. Please see each Fund’s prospectus for a discussion of risks.

References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. 

Professor Jeremy Siegel is a Professor of Finance at The Wharton School and WisdomTree’s Senior Investment Strategy Advisor.

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About the Contributor
Director, Asset Allocation
Follow Jeff Weniger
Jeff Weniger, CFA serves as Director, Asset Allocation at WisdomTree. Jeff has a background in fundamental, economic and behavioral analysis for strategic and tactical asset allocation. Prior to joining WisdomTree, he was Director, Senior Strategist with BMO from 2006 to 2017, serving on the Asset Allocation Committee and co-managing the firm’s ETF model portfolios. Jeff has a B.S. in Finance from the University of Florida and an MBA from Notre Dame. He is a CFA charter holder and an active member of the CFA Society of Chicago and the CFA Institute since 2006. He has appeared in various financial publications such as Barron’s and the Wall Street Journal and makes regular appearances on Canada’s Business News Network (BNN) and Wharton Business Radio.