DNL - DNL: Better For Total Return Than Dividend Growth
2023-07-12 15:35:49 ET
Summary
- WisdomTree Global ex?U.S. Quality Dividend Growth Fund implements a strategy based on profitability and earnings growth.
- It is well-diversified across sectors and countries, but quite concentrated in top holdings.
- Exposure to geopolitical risks is significant.
- It beats competitors in total return, but it is not a “dividend growth” fund.
This article series aims at evaluating ETFs (exchange-traded funds) regarding past performance and portfolio metrics. Reviews with updated data are posted when necessary.
DNL strategy and portfolio
WisdomTree Global ex?U.S. Quality Dividend Growth Fund ( DNL ) started investing operations on 06/16/2006 and tracks the WisdomTree Global ex-U.S. Quality Dividend Growth Index. It has a portfolio of 304 stocks, a distribution yield of 3.30%, and a total expense ratio of 0.42%. Distributions are paid quarterly.
As described by WisdomTree , eligible companies must be in the WisdomTree Global ex-U.S. Dividend Index and have a market capitalization of at least $2 billion. Then, constituents are selected using a combination of growth and quality factors.
The growth factor ranking is based on long-term earnings growth expectations, while the quality factor ranking is based on three-year historical averages for return on equity and return on assets. Companies are weighted in the Index based on annual cash dividends paid .
The fund invests mostly in large-cap companies (about 80% of asset value). The U.K. is the heaviest country in the portfolio with 15.4% of assets. It is followed by Switzerland, Taiwan, and France, weighing between 9% and 10%. China, Hong Kong, and Taiwan weigh 17% together, which represents a significant exposure to geopolitical and regulatory risks. The next chart lists the top 15 countries, representing 93% of assets.
Technology is the heaviest sector (22.1%), followed by consumer discretionary (17.5%), consumer staples (15.9%), industrials (14.7%), and healthcare (11.9%). Other sectors are below 8% individually and 18% in aggregate.
DNL sector breakdown (Chart: Author with WisdomTree data)
The portfolio is quite concentrated. The top 10 holdings represent 40.9% of asset value, and the top name Taiwan Semiconductor Manufacturing Co ( TSM ) weighs 8.64%. Exposure to any other individual companies is moderate.
| Name |
| Ticker / Exchange |
| Weight |
| Taiwan Semiconductor Manufacturing Co Ltd |
| 2330 TT |
| 8.64% |
| LVMH Moet Hennessy Louis Vuitton SE |
| MC FP |
| 5.47% |
| Unilever PLC |
| ULVR LN |
| 4.05% |
| GSK Plc |
| GSK LN |
| 3.90% |
| Nestle SA |
| NESN SW |
| 3.88% |
| Novo Nordisk A/S |
| NOVOB DC |
| 3.66% |
| Sap AG |
| SAP GY |
| 3.15% |
| ASML Holding NV |
| ASML NA |
| 2.96% |
| Tencent Holdings Ltd |
| 700 HK |
| 2.89% |
| ABB Ltd-Reg |
| ABBN SW |
| 2.31% |
Past performance
The next table compares performance and risk metrics since 7/1/2006 to a benchmark: iShares International Select Dividend ETF ( IDV ).
| Total Return |
| Annual Return |
| Drawdown |
| Sharpe |
| Std Dev |
| DNL |
| 114.41% |
| 4.58% |
| -44.53% |
| 0.28 |
| 17.13% |
| IDV |
| 75.57% |
| 3.36% |
| -70.14% |
| 0.21 |
| 20.87% |
Data calculated with Portfolio123
DNL has outperformed IDV by 1.2 percentage points in annualized return and shows a lower risk measured in drawdown and standard deviation of monthly returns (volatility).
The next chart plots the total returns in the last 5 years of DNL, IDV, and three international dividend growth funds:
- Vanguard International Dividend Appreciation Index Fund ( VIGI ).
- iShares International Dividend Growth ETF ( IGRO ).
- WisdomTree International Quality Dividend Growth Fund ( IQDG ).
DNL is the best performer in this time interval. It is in second position in 2023 to date, close behind IQDG.
The dividends paid by the fund in 2022 look very attractive, but they are outliers in a downtrend. Between 2012 and 2021, distributions went down by 20% from $0.72 to $0.52, while cumulative inflation has been about 21% (based on CPI). In fact, the "dividend growth" denomination is a bit misleading: the strategy selects dividend stocks with expected earnings growth, not growing dividends.
Takeaway
WisdomTree Global ex?U.S. Quality Dividend Growth Fund holds 304 global dividend stocks with profitability characteristics and expected earnings growth. The portfolio is well-diversified across sectors and countries, but quite concentrated in top holdings. About 17% of asset value is directly exposed to regulatory and geopolitical risks related to China. DNL has outperformed a global dividend benchmark since inception, and some of its competitors in the last 5 years. The total return is attractive, but the "dividend growth" name is misleading. Distributions have been in a downtrend since 2012, except in 2022.
For further details see:
DNL: Better For Total Return Than Dividend Growth