The U.S. economy may be on a roll, but there are better investment opportunities in other parts of the world this year.
Jeff Weniger, Chicago-based asset allocation strategist at WisdomTree Asset Management, suggests Europe, Asia, and emerging markets offer better valuations than Wall Street as we move into the New Year.
"I don't see any indication of a reduction in their economic growth," he said in a recent interview.
WisdomTree is well known in the U.S. for quality mutual funds and ETFs but is very new to Canada, having launched its first funds here in July 2016. So far they have done very well.
The WisdomTree Europe Hedged Equity Index ETF (EHE-T) returned 23.6 per cent for the year to Nov. 30 according to Globeinvestor. The WisdomTree International Quality Dividend Growth Index ETF (IQD-T) did even better at 25.6 per cent.
This company's products are worth keeping an eye on. But because WisdomTree is still new to Canada and its funds are very small, I'm recommending two tried and true ETFs to target the markets that Mr. Weniger identified as the top prospects for this year. Here they are.
iShares MSCI EAFE Index ETF (CAD-Hedged) (XIN-T)
Background: This ETF is the Canadian-dollar hedged version of a U.S. fund (EFA) that tracks the MSCI EAFE Index, which covers Europe, Australasia, and the Far East. Most of the assets are invested in the U.S. version of this ETF.
Performance: This ETF is coming off a very strong year. Total return for the 12 months to Dec. 31 was 15.9 per cent. The five-year average annual compound rate of return was 10.8 per cent.
Key metrics: The fund was launched in 2001 so we have a lot of history to work with. The MER is in the mid-range for exchange-traded funds at 0.49 per cent. The fund has 56.1 million units outstanding and net assets of almost $1.5-billion. It is 100-per-cent hedged back into Canadian dollars. Japanese stocks are the number one holding at 23.9 per cent of assets, followed by the U.K. at 17.6 per cent and France at 10.5 per cent. No other country has more than a 10-per- cent position.
Distributions: The fund makes semi-annual payments, in June and December, and they vary significantly. The June distribution in 2017 was 33.2 cents per unit while the December payout was just over $0.24. Payments over the past 12 months totalled about 57 cents per unit for a yield of 2.1 per cent based on a recent price of $27.24.
Outlook: It would be unrealistic to expect 2018 to produce as strong a gain as we saw last year, but we should continue to see this fund trend higher.
BMO India Equity Index ETF (ZID-T)
Background: This fund narrows the emerging markets focus to one country: India. It tracks the performance of the BNY Mellon India Select DR Index, which holds a basket of depository receipts that trade in New York and London. This is a highly concentrated fund, with only 16 stock holdings.
Performance: The fund offers exposure to blue chip India stocks like Infosys, State Bank of India, and Reliance Industries. Indian stocks are coming off a good year and the fund was up 34.3 per cent in 2017. The five-year average annual return is 16.4 per cent.
Key metrics: The management expense ratio (MER) is on the high side for an ETF at 0.72 per cent, however the performance to date justifies that. Assets are about $310-million and the average daily trading volume is about 17,700 shares, although some days it can be much lower. The ETF was started in January 2010.
Distributions: The fund makes annual distributions. For the 2017 fiscal year, investors received a cash payment of 9.3 cents per unit, which was paid on Jan. 5.
Outlook: The Indian stock market has been generally trending higher for the past year and the prospects for the next two years look good. A United Nations report released in December projected India's 2018 GDP growth at 7.2 per cent, up from 6.7 per cent in 2017. For 2019 for forecast is for growth to rise to 7.4 per cent. Some analysts are referring to India as the new star of emerging markets, picking up the slack caused by the slowdown of the pace of growth in China.
Ask your financial advisor if either of these funds is suitable for your account.
Disclosure: I do not own units in any of the ETFs mentioned in this article.
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Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.
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