Among the bushels of new ETFs that have been listed on the U.S. market lately are 10 foreign-sector ETFs from WisdomTree. The sector funds weight their holdings in a similar manner as WisdomTree's other funds, keying off of dividends. These are unique, in that they own no domestic stocks, unlike some putatively foreign-focused funds. They have been in the works for a while, and I believe they could be useful to investors.Out of the gate, the one that looks most interesting to me is a telecom fund called the WisdomTree International Communications Index Fund ( DGG). The telecom sector is a good way to add foreign exposure to a portfolio because every country has a phone company (usually they are among the biggest), and they often pay a healthy dividend. The fund fits the bill yield-wise -- the index that underlies it has a 4.53% yield, which is a much higher yield than the older telecom ETFs. The fund is well diversified across 20 countries, with 20.96% of assets invested in British companies, 16.13% in France and 7.68% in Germany. Like all the WisdomTree sector funds, it excludes Canada, but it has 6.49% in Australia. The stock selection is not as well diversified. Although there are 138 holdings, 9.9% is in Vodaphone ( VOD), 9.48% in France Telecom ( FTE) and 7.56% in Deutsche Telekom ( DT). In fact, the top 10 holdings account for 59% of the fund's assets. While most of the other telecom ETFs are top heavy in this manner, it is still important to be aware of. WisdomTree's promotional materials provide back-testing data that compares the fund to the MSCI EAFE Index, but I think the better comparison would be to some of the other telecom ETFs.
|Telecom ETFs |
|Fund||One year*||Three-year annualized||Five-year annualized|
|iShares DJ Telecom||17%||16%||-0.63%|
|iShares S&P Global Telecom||14%||14.9%||NA|
|WisdomTree Intl Communications||13.4%||16.22%||11.61%|
|*September 30, 2006 |
Clearly the fund holds its own. The case for owning this fund would be to complement other stocks or funds in the sector. I don't see it as a stand-alone proxy for telecom.