ETF Watch: WisdomTree Adds Dynamically Hedged Fund

New international ETF offers a dynamic hedge and 'quality dividend growth' exposure.

Today WisdomTree is launching another ETF with an adaptive hedge. The WisdomTree Dynamic Currency Hedged International Quality Dividend Growth Fund (DHDG) covers developed markets excluding the U.S. and Canada, and comes with an expense ratio of 0.48%.

The fund is listed on the Bats Global Markets exchange, which also owns ETF.com.

DHDG’s index covers dividend-paying stocks that exhibit both growth and quality characteristics. Individual companies must have paid out $5 million in cash dividends over the prior year, have a market capitalization of $1 billion, an earnings yield that is greater than its dividend yield and meet minimum volume thresholds. The companies in the investment universe are ranked according to long-term earnings growth expectations, historical three-year average return on equity and historical three-year average return on assets, with the top 300 companies selected as index components and weighted based on dividends paid, the prospectus says.

Dynamic Currency Hedge

The dynamic currency hedge is adjusted monthly based on three quantitative criteria: interest rate differentials, momentum and value, according to the prospectus. The fund can be entirely hedged or entirely unhedged. and any increment of hedging in between those two extremes. WisdomTree has teamed up with Record Currency Management on the provision of the signals for adjusting the fund’s hedging.

“[Investors] don’t have to think about whether or not they want to be hedged right now. The strategy, the rules, everything works on the investor’s behalf to give you an institutional-caliber strategy, where essentially you’re assessing real data points that have to do with currency every single month and adjusting the hedges in a way that, over time, the hope is that you are targeting those more profitable hedging opportunities with currency,” said Christopher Gannatti, WisdomTree’s associate director of research.

Gannati also notes that WisdomTree first introduced its quality dividend growth approach in 2013, and has since expanded it to cover a wide range of geographical areas. He describes WisdomTree’s approach as more forward-looking; rather than simply requiring a history of dividend growth, the firm instead focuses on criteria that suggest a company has a higher-than-average likelihood of raising its dividend in the future. Such a strategy also tends to screen out certain types of stocks.

“You end up with this natural avoidance of financials, and in particular. banks,” Gannatti said, noting it was in part due to the firms’ higher levels of leverage.

WisdomTree launched a handful of ETFs with dynamic hedges at the beginning of 2016, but only one of those has gathered significant assets. The WisdomTree Dynamic Currency Hedged International Equity Fund (DDWM) has nearly $287 million in assets under management and an expense ratio of 0.35%.

Meanwhile, the unhedged WisdomTree International Quality Dividend Growth Fund (IQDG) has just $2.4 million in assets and comes with an expense ratio of 0.38%. The fully hedged WisdomTree International Hedged Quality Dividend Growth Fund (IHDG) charges 0.58% and has AUM of nearly $506 million.

iShares Expands ‘Core’ Family
In the wake of a round of expense ratio cuts, iShares has made some more changes to its “Core” lineup of low-priced ETFs aimed at advisors. It’s adding two funds to the Core brand, renaming one of its pre-existing ETFs and launching a new one.

The iShares Core U.S. REIT ETF (USRT) makes its debut today, whereas previously it has been trading as the iShares Real Estate 50 ETF (FTY). The most notable changes beyond the fund’s name are the reduction of its expense ratio and the adoption of a much broader index. As USRT, the fund comes with an expense ratio of 0.08% and a new index, the FTSE NAREIT Equity REITs Index. As FTY, the fund tracked the FTSE NAREIT Real Estate 50 Index and charged 0.48%.

The brand-new ETF launching today is the iShares Core 5-10 Year USD Bond ETF (IMTB), which offers intermediate-term bond exposure. It charges an expense ratio of 0.08% also, and will launch on NYSE Arca.

Goldman Adds Hedge VIP Fund
Goldman Sachs has added another ETF to its lineup with the launch of the Goldman Sachs Hedge Industry VIP ETF (GVIP) on the NYSE Arca. GVIP comes with an expense ratio of 0.45%

The fund invests in companies’ selected hedge funds for their long portfolios based on their 13F filings with the Securities and Exchange Commission. Essentially, the methodology considers the top 10 holdings of the members of a universe of hedge funds, and selects its components from the ones that appear the most frequently. The index holds 50 companies that are equal-dollar-weighted when the index is rebalanced.

The prospectus specifically states that GVIP’s index is not a hedge-fund replication strategy.

Barclays Revamps 2X Europe ETN
Barclays is rolling out a revised version of its Barclays ETN+FI Enhanced Europe 50 ETN (FEEU). The brand-new Barclays ETN+ FI Enhanced Europe 50 ETN, Series B (FLEU) tracks the same index, 50 blue-chip companies selected from the Stoxx Europe 600 Index. Like FEEU, it provides 2x leveraged exposure to its underlying index and has an exposure fee rate of 0.76%. However, FLEU’s total costs, like those of FEEU, can fluctuate significantly.

Contact Heather Bell at [email protected].