International equities are finally attracting investors' attention. After a dominant 16-year stretch for U.S. stocks, many investors have overlooked meaningful exposure outside the U.S.

But with stretched U.S. valuations and concerns over an AI-driven bubble, interest abroad is being renewed. While international equities' outperformance this year is modest by historical standards, it marks a notable shift—led by traditional value sectors such as Telecoms, Utilities and Banks rather than the AI-related leadership driving U.S. markets.

Figure 1: S&P 500 vs. MSCI EAFE Cumulative Total Returns (Positive = U.S. Outperformance)

The WisdomTree International Quality Dividend Growth Fund (IQDG) and WisdomTree International Hedged Quality Dividend Growth Fund (IHDG) provide investors with exposure to developed-market dividend payers with high profitability and strong earnings growth expectations—a combination designed to support long-term dividend growth potential.

The WisdomTree International Quality Dividend Growth Index, which underlies both Funds, completed its annual rebalance effective October 23, 2025, incorporating methodology enhancements aimed at refining its role as a core international equity allocation.

Methodology Changes

IQDG and IHDG have long served as developed-market counterparts to the WisdomTree U.S. Quality Dividend Growth Fund (DGRW).

Historically, DGRW's dividend requirement pulled it slightly toward value, while the profitability and growth screens created a growth tilt in the international version.

To help balance the growth side of foreign markets with a more "core" international focus, the Index methodology was refined in two ways:

1. Selection:

• Banks are now ranked on 50% earnings growth and 50% ROE, excluding ROA from the screen to better reflect sector-specific business models.
• All other companies are ranked on 50% earnings growth, 25% ROE and 25% ROA, unchanged from the previous process.

2. Weighting:

• Country exposures are maintained within ±5% of market-cap weights; sector exposures within ±10%.

These changes ensure the Index captures broad developed-market exposure while maintaining the Index's quality and dividend growth orientation.

Figure 2: Index Methodology Change Summary

Refining Bank Selection

Both return on assets (ROA) and return on equity (ROE) are widely used measures of profitability. In the WisdomTree Quality Dividend Growth methodology, the two metrics are used together to capture complementary dimensions of company quality: ROE gauges how efficiently a company uses shareholders' equity to generate profits, while ROA helps penalize firms that rely heavily on leverage to drive those profits.

In other words, a company with high ROE but low ROA may be using excessive leverage to boost returns, something our process explicitly seeks to avoid.

Banks, however, operate with significant leverage as an inherent part of their business model, which makes cross-sector profitability comparisons less meaningful. Because bank assets are typically marked to market, ROA tends to understate profitability relative to other industries. In contrast, ROE provides a more relevant measure of bank performance, particularly when comparing profitability among financial-sector peers.

Figure 3: MSCI EAFE Industry Groups

Given Banks' substantial presence in developed international markets (14% of MSCI EAFE), the Index adjustments allow for a more representative core exposure—increasing bank weight from 0.2% to 10.8% post-rebalance.

This adjustment improves alignment with the market benchmark while maintaining discipline around quality and risk management.

Figure 4: Bank Exposure across Indexes

Holdings and Sector Shifts

The rebalance refreshed nearly the entire top-10 holdings list.

New leaders include Toyota, LVMH and Novo Nordisk, with BBVA and ING Group joining as top-10 additions.

Figure 5: Top 10 Holdings

Sector Impacts:

• Financials: +10% (mainly from Banks)
• Information Technology: –10%

These shifts bring sector exposures closer to the MSCI EAFE benchmark while preserving meaningful over-weights in Consumer Discretionary (+11%) and Industrials (+5%), both consistent with WisdomTree's quality-growth tilt.

Figure 6: Sector Exposures

Country Exposures

The largest changes occurred in France (+10%) and the United Kingdom (–5%), leaving country weights broadly consistent with MSCI EAFE.

Figure 7: Top Country Changes

Valuation and Quality Metrics

Post-rebalance, the Index exhibits:

• 91% large-cap exposure (vs. 83%)
• Slightly higher dividend yield: 2.8% (vs. 2.7%)
• Lower valuations: 16x P/E (vs. 22x)
• Improved profitability: ROE 16.9% (vs. 16.5%)
• Lower ROA: 2.7% (vs. 4.0%), reflecting higher Financials exposure

These enhancements create a more attractively valued and higher-quality international equity basket, while maintaining strong income potential.

Figure 8: WisdomTree Global ex-U.S. Quality Dividend Growth Index Before and After

Alignment with Core Benchmarks

Following the rebalance, the Index shows a 12% higher overlap with MSCI EAFE, resulting in a lower tracking error and more direct exposure for investors seeking a core international allocation.

Figure 9: Index Comparison

Rebalance Turnover

Turnover increased modestly to 57%, up from 48% in 2024, reflecting both the methodology refinements and the refreshed positioning.

Figure 10: Historical Rebalance Turnover

Positioning for a New Phase of International Leadership

After years of U.S. dominance, investors are revisiting developed international equities. The WisdomTree International Quality Dividend Growth Index now offers a more balanced, core-aligned approach—capturing quality and dividend growth characteristics without an excessive growth or value bias.

The enhanced methodology, greater bank representation and improved valuation profile together position IQDG and IHDG for a potential leadership phase in international markets anchored in fundamentals.