Touring Big-Cap Europe

Because of its concentration in the biggest stocks, this fund yields a relatively high 3.58%. However, the fund has lagged the other large-cap European funds that have been trading for the last four years. I believe this is because it does have a larger cap size, really mega-cap, and the largest stocks have lagged smaller caps globally over those same four years.

I would expect FEU to provide more performance leadership toward the end of a stock market cycle, which for Europe could still be a ways from coming. FEU has a beta of 0.90, a standard deviation of 9.91 and a correlation of 0.68 to the S&P 500.

The last two funds to touch on are from WisdomTree, and are variations on the same high-yielding theme: WisdomTree Europe Dividend Index Fund (DEB) and the WisdomTree Europe High-Yielding Equity Index Fund (DEW). DEW is a sort of subset of DEB. DEB has 1088 holdings weighted by dividends, while DEW owns the 313 biggest dividend payers out of the 1088 holdings in DEB. The top tens for each fund have eight names in common, with, you guessed it, BP and HSBC being the largest two components.

The sector weightings of the two are similar, but not exact; DEW has 42% in financials compared to 34% for DEB; DEW is also heavier in telecom and energy. Like all of the funds covered here, the U.K. is largest country weight for each fund, and interestingly, Italy is much larger in DEW and DEB than in the other funds, weighted at 13.7% and 9.1%, respectively.

The dividend yields are the highest of the bunch; DEB yields 3.69% and higher-yielding DEW comes in at 4.6%. DEB has a beta of 0.82, a standard deviation of 10.33 and a correlation 0.55 to the S&P 500. DEW has a beta of 0.93, standard deviation of 10.65 and a correlation of 0.61 to the S&P 500.

One thing about the two WisdomTree funds that I don't quite get is that their research tells them that dividend weighting, the method they use for most of their funds, outperforms cap weighting and maybe fundamental weighting, too. But if dividends are the thing, and both funds are pulling from the same pool of stocks, doesn't that mean that the lower-yielding DEB will always lag the higher-yielding DEW? With only five months of track record, there is not enough data to draw a conclusion yet.

The point of this article was to create some awareness of funds that don't trade a lot or get talked about a lot. If you use broad-based index products for your portfolio, you might find an ETF in this group worthy enough for your portfolio.

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