The new fund complements WisdomTree’s existing quality dividend growth ETFs launched last month:
WisdomTree US Quality Dividend Growth Ucits ETF (DGRA) and WisdomTree Global Quality Dividend Growth Ucits ETF (GGRA).
The firm’s methodology for the ETFs emphasises the shifting trends in dividends and focuses on fundamental metrics that the company believes are associated with future dividend growth potential.
Strategy criteria
WisdomTree’s strategies use quality metrics focused on companies that are growing their dividends using the following criteria:
Growth: long-term earnings growth expectations – firms expected to grow their earnings faster, based on consensus analyst estimates, should have greater potential to increase future dividends.
The constituents selected by WisdomTree’s quality dividend growth indices exhibit consistently higher median dividend growth compared to market capitalisation-weighted benchmarks excluding Emerging Markets.
Quality: combining quality factors to target earnings inputs – three-year average return of equity (ROE) and return on assets (ROA) figures are used to determine how efficiently firms are generating profits.
Whilst ROE offers a means of gauging profitability, it can be inflated by leverage. ROA offers a means of mitigating overleverage, and combined with ROE, offers a way of screening for sustainable earnings.
Grow earnings
Viktor Nossek, director of research at WisdomTree Europe said: “We believe that companies that can grow their earnings also have the greatest potential to raise their dividends. Our proprietary quality dividend growth strategies are aligned with Warren Buffet’s approach of investing in companies with a robust return on equity (ROE) and return on assets (ROA) – those with little or low debt.”
Nizam Hamid, ETF strategist at WisdomTree Europe said: “In this current low-interest rate environment, we believe a quality tilt in the Eurozone may appeal to investors looking for a strategy that concentrates on forward looking fundamentals.
“The screening methodology we employ for these quality dividend products ensures higher weights in technology and consumer staples along with low weights in financials.”
