With the dollar diving against most major currencies and U.S. economic growth stalling, international investing is becoming essential for generating decent returns. WisdomTree Trust, with its exchange-traded funds based in the fundamentals, offers one smart way to go international with fewer hassles from investing directly in individual companies.
Wisdom Tree launched both international and domestic dividend ETFs in June 2006 that were based on indexes of stocks weighted by cash dividends or dividend yields. Since then, WisdomTree Pacific ex-Japan Total Dividend Fund
Benchmark-beating performance for the intelligent investor
Typically, index investors seek only to match their benchmarks. Yet WisdomTree's Pacific fund handily beat its benchmark, the MSCI Pacific ex-Japan Index, which delivered cumulative returns of 79% in that period.
Both indexes focus exclusively on companies incorporated and listed in Australia, New Zealand, Hong Kong, and Singapore, with Australia making up the largest portion of the fund's assets. As a result, they are heavily weighted toward some major financial companies operating out of these markets.
Yet the two indexes use different strategies to determine which stocks to include. The MSCI index is weighted by the traditional market capitalization method, favoring widely held and highly valued companies like BHP Billiton
In contrast, the innovative methodology of WisdomTree's index is that it includes only companies that are paying regular cash dividends. This focus on earning and returning hard cash to investors is quite a stringent criterion and it's exactly what an intelligent investor should look for.
Relatively mature, slow-growing companies tend to be the ones that pay regular dividends. This index fishes in the same waters as its MSCI benchmark, but only where there's good visibility into the quality of the underlying business.
Given WisdomTree's conservative approach, one would expect this ETF to underperform its MSCI Index benchmark. However, its top holding is Hong Kong-listed high performer China Mobile
Highly competitive expenses, too!
Although WisdomTree bases this ETF on a proprietary index, its expense ratio is fractionally lower than the 0.50% of its direct competitor, iShares MSCI Pacific ex-Japan Index Fund
With only a year of experience, it remains to be seen whether the WisdomTree method will continue to outperform other indexes. The WisdomTree Pacific fund has certainly started out on the right foot.
Fool contributor Saibal Saha loves dividend-paying Cash Kings, but he doesn't own any of the stocks or ETFs mentioned in this article. You can see his holdings here. China Mobile is a former Global Gains recommendation. The Motley Fool has the disclosure policy intelligent investors expect.