Increase exposure to European equities
By Alejandro Saltiel, CFA
Associate Director, Research
European stock markets have been strong this year, rebounding from last year’s pandemic slowdown and ranking among the best performers since the start of the year1.
Many companies in cyclical sectors like consumer discretionary and financials have reinstated their dividend payments this year after being forced to suspend them in 2020.
The euro area economy appears to be running at full speed. In the second quarter, growth in the euro area, measured by GDP, increased by 2% quarter on quarter2, surpassing that of the United States and China. The third quarter earnings season has been strong so far, showing a 7% net profit surprise driven3 through upward revisions to net margins, the highest upward revisions to net margins since 2010.
Consumer demand aided by the economic reopening and accommodative monetary policy helped release excess savings that had accumulated during the pandemic, and increases on the production side were led by the service sectors.
WisdomTree offers exposure to different European themes through the funds below:
These Europe-focused indices were rebalanced earlier in November as part of our annual developed international rebalancing process.
After the rebalancing of WTEHIP, the ETF Ticker HEDJ will have a slightly higher dividend yield, lower P / E valuation and higher profitability metrics compared to its benchmark, the MSCI Eurozone Index. Likewise, WTEDG (ETF Ticker EUDG) and WTESC (ETF Ticker DFE) will exhibit similar characteristics to the MSCI Europe index with the quality basket, EUDG having a higher quality factor and the SmallCap basket, DFE, trading with a larger P / E discount. .
Please read the prospectus carefully before investing.
For the most recent standardized performance, 30-day SEC yield and month-end performance, click on the respective tickers: HEDJ, UEDG, DFE.
Following the recovery of dividends from European consumer discretionary and financials companies, HEDJ saw its exposure to these sectors increase, while its exposure to the consumer staples, information technology and materials sectors was reduced. . Overall, HEDJ’s focus on exporters continues to fuel its overweight position in the consumer staples, healthcare, industrials and materials sectors relative to its benchmark, l MSCI Eurozone index.
For EUDG, the effect of the dividend recovery was also manifested in its increased exposure to consumer discretionary, while rising commodity prices and rising inflation resulted in a significant increase in exposure. to the materials sector. Overall, EUDG’s focus on quality and dividend growth resulted in an overweight position in Consumer Staples and Consumer Discretionary, as well as Healthcare, Industrials and Materials versus its benchmark MSCI Europe.
DFE’s European small cap exposure saw a combination of sector increases from other funds. The recovery in dividends, as well as the increase in commodity prices, has led WTESC to increase its exposure to the consumer discretionary, financials and industrials sectors. Exposures to European small caps will give investors an overweighting of cyclical sectors relative to the general MSCI Europe index.
The most significant country-level changes in HEDJ were an increase in exposure to Spain and a reduction in exposure in the Netherlands.
The increased exposure to Spain can be attributed to the addition of Banco Santander, SA and BBVA, SA to the portfolio after the reinstatement of their dividends. On the other hand, the reduction in the Netherlands is linked to the unification by Unilever of its legal structure under its British entity at the end of 2020.
For EUDG, the most significant changes were increased exposure to Germany, as companies like Adidas AG and Covestro AG were added to the portfolio, and reduced exposure to the UK through the removal of British American Tobacco from the portfolio. portfolio due to its increased Composite Risk Score (CRS). because of its high dividend yield.
Small caps and the DFE portfolio saw the largest increase in their exposure to Italy due to the reinstatement of dividend payments by Italian banks. This portfolio saw its exposure to Switzerland and the Netherlands decrease.
To find out the current holdings of each fund, click on the respective symbols: HEDJ, EUDG, DFE.
Exhibitions by country
1 The MSCI Europe index has outperformed the MSCI EAEO and MSCI EM indices since the start of the year. Data as of 05/11/2021. Source: Tree of Wisdom, Bloomberg.
2 Data as of 08/17/2021. Source: Bloomberg.
3 Data as of 10/29/2021. Source: Bloomberg.
Originally posted by WisdomTree on November 22, 2021.
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Significant risks associated with this article
The WisdomTree Europe Funds seek to track the price and yield performance, before fees and expenses, of relevant WisdomTree Europe indices.
There are risks associated with investing, including possible loss of capital. Foreign investment involves special risks, such as the risk of loss due to currency fluctuations or political or economic uncertainty. Investments in foreign currencies involve additional special risks, such as credit risk and fluctuations in interest rates. Derivative investments can be volatile and these investments can be less liquid than other securities and more sensitive to the effects of varying economic conditions. HEDJ may have a high concentration in certain issuers, the Fund may be adversely affected by changes affecting these issuers. Due to HEDJ’s investment strategy, it may make higher capital gains distributions than other ETFs. EUDG focuses its investments in Europe, thereby increasing the impact of events and developments associated with the region which may negatively affect performance. Dividends are not guaranteed and a company that currently pays dividends may stop paying dividends at any time. Investments in foreign currencies involve additional special risks, such as credit risk and fluctuations in interest rates. EUDG invests in the securities included in, or representative of, its Index, regardless of their investment merit. EUDG does not seek to outperform its index or take defensive positions in declining markets. Funds focusing their investments on certain sectors and / or smaller companies increase their vulnerability to any single economic or regulatory development. This can lead to greater volatility in stock prices. Please read each Fund’s prospectus for specific details regarding the Fund’s risk profile.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.