New WisdomTree ETFs To Offer Granular Exposure to International Markets

by: Market Participant posted on: April 17, 2006 | about stocks: EEM / EFA / EFG / EFV / FDL / PID

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Thanks to exchange traded funds, investors now have quick, easy and cheap access to foreign stock markets. The biggest non-US ETFs are iShares MSCI EAFE Index Fund (EFA) [14.87B] and iShares MSCI Emerging Markets (EEM) [9.09B]. Unfortunately most foreign ETFs (except for Vanguard VIPERs) charge heavy management fees, generally north of 0.60%. Nonetheless, this is still much cheaper than normal mutual funds targeting a "specialty" area such as international stocks.

Somewhat more specialized than the broad market ETFs are a gaggle of single country funds from iShares, and more broad geographic funds (Europe, Asia ex-Japan, Latin America). The only differentiated international ETFs have been the iShares MSCI EAFE Value Index (EFV), iShares MSCI EAFE Growth Index (EFG), and Powershares International Dividend Achievers (PID). I love PID, and I think everyone must own it. Note that I said "must", not "should"; everyone must own PID.

At the moment, PowerShares is the only player for investors seeking international dividends for income and as a hedge against the decline of the dollar. That is about to change, however, as WisdomTree recently filed with the SEC for 20 dividend ETFs. Wisdomtree has proposed to create universes of dividend paying stocks from both the United States and the rest of the world. The index will be weighed based on dividends paid in proportion to the total dividends available in the universe; a similar methodology to the Morningstar Dividend Leaders Index Fund (FDL) from First Trust. Morningstar has published a white paper on their available dividends index method.

What is most interesting about the proposed International Dividend funds from WisdomTree is that they plan to slice the non-US universe into regions (Europe, EFA, Japan, Pacific ex-JP) and market cap tranches. When the WisdomTree ETFs get listed, investors could, for example, choose to have exposure to small cap Japanese companies that pay dividends.

These dividend funds will be the first funds to offer explicit small-cap and mid-cap international exposure. The requirement that companies pay dividends will act as a screen against immature companies with weak cash flow and give the indices a value bias. I predict that these WisdomTree ETFs will become very popular with investors and be an essential part of a balanced portfolio.

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