DXJ WisdomTree Japan Hedged Equity Fund

WisdomTree has seen a great level of success so far in 2013, largely thanks to its international products. In particular, there has been a surge in interest in its Japan Hedged Equity ETF (DXJ), which has stayed atop the asset inflow charts.

Possibly thanks to this foreign product success, WisdomTree has put a new product into registration in order to give investors another fresh way to tackle international securities. However, unlike DXJ, this new product doesn’t seek to hedge currency issues and instead looks to be focused in on risk.

Proposed fund in focus

The proposed ETF, via a recent SEC filing, will go under the name of the Vident International Equity Fund (VIDI), giving broad exposure to both developed and emerging markets outside of the U.S.  This will be done by following the Vident International Equity Index, a benchmark that focuses on 35 of the largest and most liquid markets from around the globe (read The Guide to International Treasury Bond ETF Investing).

These 35 nations are then split up into five groups, ranking each on economic growth and private sector productivity, corporate growth, and momentum. The best ranked quintiles receive the biggest weight in the index, and thus their domestic securities receive a bigger chunk of the total assets, although each country is capped at 10%.

In terms of individual securities in each nation, the index looks to take 10 from each country, focusing on liquidity. Beyond that, risks are also assessed as each company’s vulnerability to market turbulence and their respective contributions to overall country risk are taken into account as well.

How might it fit in a portfolio?

This ETF, if ever approved, could be an interesting option in the global ex-US market for those who want a diversified portfolio. Risks look to be limited thanks to the security selection process, while exposure will likely be spread out among nearly three dozen nations, so country specific risks look to be minimal (also read 4 International ETFs Yielding More than 5%).

This more involved index could increase costs though, while the focus on individual countries could leave the product more concentrated in certain regions—like Europe—but only time will tell on these fronts. The quintile approach for the nations is interesting, and this could help it set itself apart from other products in the space.

Future Competition

There are a lot of choices already in the global ex-US space, so it could be a fierce battle for AUM. One of the biggest competitors is likely to be the Vanguard FTSE All-World ex-US ETF (VEU) which has over $9 billion in assets, and roughly one million shares of volume in a day (read Seven Biggest International Equity ETFs).

The ETF is roughly half in Europe, and then the vast majority of the rest of the portfolio is in Asia-Pacific nations. In terms of securities, financials account for roughly 23%, followed by a host of sectors at 10% including industrials, consumer staples, and basic materials.

Beyond this ultra-popular fund, there are literally dozens of other choices out there, including GWL, ACWX, and VXUS, just to name a few. Given this, VIDI could have a tough fight on its hands, so it will really have to sell its risk-focused and diversified approach if it hopes to compete in the global ex-US ETF world.

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ISHRS-MSCI ACWX (ACWX): ETF Research Reports
 
WISDMTR-J HEF (DXJ): ETF Research Reports
 
SPDR-SP WRLD EX (GWL): ETF Research Reports
 
VANGD-FTSE AWLD (VEU): ETF Research Reports
 
VANGD-TOT ISIF (VXUS): ETF Research Reports
 
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