DFE WisdomTree Europe SmallCap Dividend Fund

The world market is experiencing ups and downs with high levels of economic uncertainty. The relentless Euro-zone debt crisis, a still high unemployment rate, low interest rates and higher inflation across emerging markets continue to plague equities forcing many investors to look to sector exposure over individual equities.

ETFs, which can often pay superior dividends, are arguably the best option available to investors as these ensure safety with low costs, even if the world market crashes or collapses. Today, when returns from equities are at risk, dividend-focused ETFs have become the major source of consistent income for investors (Read: Create a Diversified Portfolio Using ETFs).

Furthermore, dividend paying securities have a long track record of providing investors with solid gains over long time periods. In fact, if we look over the past century, dividends have accounted for about 47% of the S&P 500’s total returns!

Although dividend-focused ETFs are safe for investors, they are by no means risk-free. (Read: Gold ETFs May Continue to Shine in 2012) Bondholders get the first priority in a liquidation event, forcing stock holders to wait in line if the worst happens.

Companies are also under no legal obligation to pay dividends. As a result, any financial instability or abnormal situations arising in operations also force companies to cut their existing dividends. Further, many dividend ETFs are concentrated in a particular sector, which might underperform the overall market, ignoring the best performing sectors.

These risks can, however, be lessened with sound knowledge of the components in dividend focused ETFs. Below, we highlight 11 great dividend ETFs which yield hungry investors may want to consider for their portfolios:

WisdomTree Australia Dividend Fund (AUSE)

This fund, launched by WisdomTree in June 2006, seeks to deliver the performance of high-dividend yielding companies in Australia that have a market capitalization of at least $1.0 billion. It uses the passive indexing approach and tracks the WisdomTree Australia Dividend Index, which is a fundamentally weighted index. The fund holds 65 stocks in total and puts less than 30% of its assets in top 10 firms (Read: Australia ETFs: A Developed Market Play On Asian Growth).

The product consists of ten largest qualifying companies from each sector. Financials and consumer discretionary constitute the top sector in the fund’s basket. With respect to individual holdings, Telstra Corp, Westpac Banking and Metcash are the top three companies.

AUSE currently has assets of about $60.7 million and low fees of 58 bps per year. However, the fund generated a negative return of 9.38% in the last one-year period (as of March 2012) but pays an astounding dividend yield of 5.73% per annum.

WisdomTree Europe SmallCap Dividend Fund (DFE)

Investors interested in small cap companies in Europe may find DFE an interesting play. Initiated in June 2006 by WisdomTree, this fund tracks the performance of the WisdomTree Europe SmallCap Dividend Index. This results in a fund that holds 334 high dividend-paying stocks that comprise the bottom 25% of market capitalization of the WisdomTree Europe Dividend Index excluding the 300 largest companies.

The fund provides broad exposure to European countries – United Kingdom 36%, Sweden 14%, Italy 9%, Germany 8%, Finland 6%, Norway 4%, Belgium 4%, France 4%, Netherlands 4%, Spain 3%, Portugal 2%, Ireland 2%, Austria 2%, Denmark 1% and Switzerland 1%. (Read: Norway ETFs for Safer European Play)

The ETF is least concentrated (about 10%) in its top 10 holdings, each in equal proportions. It is heavily exposed to industrials and consumer discretionary with 25% and 20% weightings, respectively. The product charges 58 bps in fees per year and has about $28 million of AUM. It also has an impressive yield of 5.15% per annum although it has produced negative returns of 13.63% in the last one-year period.                                                                          

WisdomTree DEFA High-Yielding Equity Fund (DTH)

This fund provides exposure to high dividend yielding stocks internationally. Launched in June 2006, the fund replicates the performance of the WisdomTree DEFA Equity Income Index, holding 425 stocks in its basket.

These stocks have market capitalizations of at least $200 million and average daily trading volumes of at least $200,000 in the last three months. The high yield ETF puts 24% of its assets in the top ten firms; including the top three of China Mobile, Vodafone and Commonwealth Bank of Australia. Giant and large companies constitute 85% of the assets.

Financials take the top spot in the basket followed by telecommunication services and healthcare. Country wise, the fund has allocated 22% to companies in the United Kingdom, followed by 18% in Australia and 11% in France. With total assets of about $170.3 million and an expense ratio of 0.58%, the product delivers solid annual dividend yield of 5.11%. However, it generated unimpressive annual returns of negative 11.66% in the most recent one year period (as of March 2012). (Read: Three Financial ETFs Outperforming XLF)

WisdomTree Global Equity Income Fund (DEW)

Like other WisdomTree dividend ETFs, this fund was introduced in June 2006 and has amassed AUM of $89 million since then. This fund seeks to deliver the performance of the dividend paying stocks of companies situated in the U.S., developed and emerging countries. These stocks should have a market capitalization of at least $2 billion.

About 20% of the companies are located in the U.S., 13% in the United Kingdom and 10% in Australia. The rest of the companies are from the other developed and emerging nations such as France, Switzerland, Canada, Brazil etc. (Read: Five Emerging Market Infrastructure ETFs For The Coming Boom)

The fund holds 559 stocks in total and puts 15% of its assets in the top 10 companies. Top holdings include AT&T, China Mobile, Vodafone and Nestle. Giant and large companies make up the majority of the basket, representing 87% on a combined basis.

The fund is heavily weighted towards financials and telecommunication services with a 25% and 18% allocation, respectively. It charges investors a fee of 0.58% per year and distributes a solid dividend yield of 4.65%. The fund is not performing well as it delivered negative 7.60% one-year returns (as of March 2012).

WisdomTree International LargeCap Dividend Fund (DOL)

Investors seeking safe investments outside the U.S. and Canada may find this fund intriguing. This product, having AUM of $164.10 million, measures the performance of the large-cap dividend paying stocks by tracking the WisdomTree International LargeCap Dividend Index. The fund holds 209 stocks and is most exposed to the United Kingdom followed by Australia, France and Japan. (Read: For Japan ETFs, Think Small Caps)

The product has a low level of concentration in the top 10 companies, as these firms account for just 20% of assets. China Mobile, Vodafone and Nestle represent its top three holdings. The fund is heavy on financials and telecommunication services while light on materials and information technology.

With low fees of 48 bps a year, the fund pays good dividend of 4.58% per annum. But the fund generated negative annual returns of 9.62% in the past one-year period (as of March 2012).

WisdomTree International Dividend ex-Financials Fund (DOO)

This fund measures the performance of high dividend-yielding international stocks outside the financial sector. (Read: Beware These Three Volatile Financial ETFs) It tracks the WisdomTree International Dividend ex-Financials Index. With total assets of $338.0 million, the fund primarily consists of large and mid-cap companies incorporated in Europe, Japan, Australia, New Zealand, Hong Kong and Singapore.

In particular, the country exposure is tilted towards developed markets like the United Kingdom, Australia and France.

The fund puts 19% of assets in top 10 holdings, including Telstra Corp, Belgacom and RWE AG. It is heavily exposed to telecommunication services followed by utilities, healthcare and industrials. The fund holds 89 stocks and has lower annual fees of 58 bps a year.

The dividend ETF underperformed the market producing negative 11.04% returns in the past one-year period (as of March 2012). Despite this, the fund’s strong dividend yield of 4.66% supports the positive bias for the dividend-focused investors seeking safe income.

Global X SuperDividend ETF (SDIV)

One option available to investors looking for wide exposure is Global X entrant into the dividend space. Initiated in June 2011, SDIV seeks to track the price and yield of the Solactive Global SuperDividend Index, before fees and expenses. The index holds 100 equally weighted stocks that are among the highest dividend payers in the world.  

The fund uses a full replication strategy holding 102 stocks with roughly 13% concentrated in top 10 holdings. The Russian Federation based Surgutneftegaz, Australia based Fleetwood Corporation and Bermuda based Seadrill constitute the top spots in the basket. Mid and small caps represent about 78% of the holdings while giant, large and micro make up the rest.

The fund has substantial global exposure with 34.5% in United States, 23.6% in Australia, 7.5% in United Kingdom, 6.1% in Canada, 5.0% in Singapore, 2.6% in New Zealand, 2.1% in Czech Republic, 2.0% in Brazil, 1.6% in Spain, 1.5% in Taiwan and 13.4% in other countries.

The product is heavily weighted towards the real estate (REIT) sector followed by financial and communication services. (Read: Time For A Commercial Real Estate ETF?) With the total assets of about $56.4 million, the fund has produced unimpressive returns of negative 10.22% since its inception but yielded excellent dividends of 5.64% per annum. The product, however, charges higher fee of 79 bps compared with its category average of 53 bps.

SPDR S&P International Dividend ETF (DWX)

Investors seeking to invest in the international market can play it with State Street’s DWX, which was launched in February 2008. With total assets of about $846.8 million, this fund provides exposure to the international stocks that offer high dividend yields.

It holds 125 stocks of which roughly 32% are in top 10 holdings weighted equally, including Admiral Group, Prosiebensat1 Media and Komercni Banka. Communication services and utilities take the top spot in the basket. (Read: Utility ETFs: Slumping Sector In Rebounding Market)

DWX has more than 70% correlation with the developed countries and 15% with the emerging countries. Australia and Germany combine to comprise about 20% of the exposure. The product tracks the price and performance of the S&P International Dividend Opportunities Index, which holds 100 stocks in its portfolio.

The ETF charges investors a fee of 45 bps a year and yields an attractive dividend yield of 5.65% per annum. Nevertheless, the fund underperformed the market producing negative returns of 15.33% in a year (as of March 2012).

STOXX European Select Dividend Index Fund (FDD)

Made evident by the name, this fund provides exposure to numerous European countries. (Read: Three European ETFs Beyond The Euro Zone) Issued in August 2007 by First Trust, this fund seeks to track the price and performance of the STOXX Europe Select Dividend 30 Index, before fees and expenses. The index is a dividend-weighted index of 30 stocks selected from the Dow Jones STOXX 600 Index, which includes high-dividend yielding companies across 18 European countries.

With total assets of about $11.4 million, FDD represents a basket of dividend-paying stocks that have a positive 5-year dividend per share growth rate and a maximum 60% dividend to earnings per share ratio. Approximately 39% of the companies are established in the United Kingdom, 12% in France and 11% in Germany. The rest are based in Switzerland, the Netherlands, Belgium Bermuda, Spain, Italy and Sweden.

The product puts more than 40% of its assets in top 10 firms, including Koninklijke (Royal) KPN, Royal & Sun Alliance Insurance and France Telecom. It is heavily weighted towards financials and telecommunication services.

Though the fund is quite expensive compared to its category average, it yields impressive 5.32% annual dividends. The product, however, delivered negative annual returns (as of March 2012) of 14.05%.

S&P Global Dividend Opportunities Index (LVL)

Another option available to investors seeking a broad exposure is LVL, launched by Guggenheim in June 2007. This ETF is a passively managed fund and uses the full replication strategy holding all the 100 stocks in the S&P Global Dividend Opportunities Index. The fund consists of stocks, MLPs and ADRs with market capitalization on the upside of $1.5 billion that offer high dividend yields and is included in the S&P Broad Market Index.

Large and mid-cap stocks constitute 29% and 42%, respectively. LVL puts approximately 32% of its assets in the top 10 holdings, weighted equally between 3% and 4%. The product is heavy on communication services, consumer cyclical and real estate while light on consumer defensive, healthcare and energy. (Read: Two Energy ETFs Holding Their Ground)

Further, the majority of companies are established in the United States followed by Germany and Australia. The product has $59.9 AUM and charges a higher fee of 60 bps a year compared to the category average of 53 bps. It yields attractive annual dividends of 5.25% but produced unimpressive returns of negative 11.06% in the recent one year time frame (as of March 2012).

First Trust Dow Jones Global Select Dividend Index Fund (FGD)

Investors seeking broad exposure in developed markets can choose this ETF, designed by First Trust. With total assets of about $175.4 million, the fund uses full replication strategy holding 102 stocks in the First Trust Dow Jones Global Select Dividend Index.

The stocks in the fund are considered to be the large and mid-cap stocks, which have a current year dividend per share ratio greater than or equal to that of its five-year annual average and five-year average payout ratio of maximum 60% for U.S. and European companies or maximum 80% for other companies in other countries. The stock should also have a minimum three-month daily average trading volume of $3 million. (Read: iShares Launches Seven Developed Market ETFs)

A plurality of the fund (24%) is allocated to the telecommunication services sector. Financials and utilities also make up 20% and 16%, respectively. The product puts about 16% of its assets in the top 10 holdings, each in the range of 1-2%. The fund is broadly diversified across many developed countries including: Australia with 17% weighting, United States 15%, United Kingdom 12%, France 7%, Canada 7%, Hong Kong 6%, Germany 6%, Sweden 5%, Spain 3% and New Zealand 3%.

The product is expensive relative to the other options available in the dividend space. Yet, the fund yields a healthy annual dividend of 4.72% but has underperformed over the past one year (as of March 2012), producing negative returns of 5%.

See more ETFs in the Zacks ETF Center

Provided below is the summary of ETFs:

 

Fund Name	Inception Date	Issuer	AUM (in millions)	No. of Holdings	Expense Ratio	Distribution Yield	1 Yr Return
AUSE	June-06	WisdomTree	$60.70	65	0.58%	5.73%	-9.38%
DFE	June-06	WisdomTree	$28.00	334	0.58%	5.15%	-13.63%
DTH	June-06	WisdomTree	$170.30	425	0.58%	5.11%	-11.66%
DEW	June-06	WisdomTree	$89.00	559	0.58%	4.65%	-7.60%
DOL	June-06	WisdomTree	$164.10	209	0.48%	4.58%	-9.62%
DOO	June-06	WisdomTree	$338.00	89	0.58%	4.66%	-11.04%
SDIV	June-11	Global X	$56.40	102	0.79%	5.64%	-10.22%
DWX	Feb-08	State Street	$846.80	125	0.45%	5.65%	-15.33%
FDD	Aug-07	First Trust	$11.40	32	0.60%	5.32%	-14.05%
LVL	June-07	Guggenheim	$59.90	100	0.60%	5.25%	-11.06%
FGD	Nov-07	First Trust	$175.40	102	0.60%	4.72%	-4.99%

 

 
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