New SPDR International Dividend ETF Offers Lower Costs, Higher Returns

The SPDR S&P International Dividend ETF (DWX) began trading on the American Stock Exchange on Tuesday. Standard & Poor's just announced the launch of its underlying index, the S&P International Dividend Opportunities Index, a couple of weeks ago when it rolled out its Dividend Opportunities index family. The only other index in the series is the S&P Global Dividend Opportunities Index; the main difference between the two is that the "international" index excludes the U.S. while the "global" index includes it.

Stocks eligible for inclusion must have a total market capitalization of at least $1.5 billion and a three-month average daily value traded of more than $10 million; they must have had at least 300,000 shares traded in each of the six months prior to selection. Eligible stocks must also have positive five-year earnings growth and have been profitable for the most recent 12-month period.

These screens aside, the index essentially represents the top 100 non-U.S. stocks based on dividend yield, and its weighting methodology is described by S&P as "yield driven." Because the initial universe is the S&P/Citigroup Broad Market Index, the index includes emerging markets. This is probably the only dividend index to include a mix of stocks from both developed and emerging economies. Together, the weightings of Indonesia, South Africa, Turkey and the Czech Republic add up to 9.61% of the index—if emerging markets were treated as if they were one country, the resulting entity would be the fourth-largest country in the index, right behind Australia and ahead of Italy.

"The SPDR S&P International Dividend ETF was developed in response to strong demand from our clients seeking the competitive yield opportunities available from foreign company dividends, which have historically yielded more than those of U.S. companies," says Anthony Rochte, senior managing director at State Street Global Advisors.

While none of them include emerging markets, there are a few other global ex-U.S. dividend ETFs out there. WisdomTree, for example, has a few, as well as two dividend ETFs covering emerging markets; none of the WisdomTree funds combine emerging markets with developed markets. However, the iShares Dow Jones EPAC Select Dividend Index Fund (IDV) is likely the most comparable. It holds the same number of stocks (100) from a similarly broad market cap range and includes developed-market stocks from Europe, Asia Pacific and Canada. The underlying index was up just 8.95% for 2007 versus 20.95% for DWX's index, which also outperformed the Dow Jones EPAC Select Dividend Index significantly for the three-year and five-year annualized periods (up 24.47% and 31.83%, respectively, versus 19.50% and 27.16%). No doubt the inclusion of emerging markets helped to boost the S&P International Dividend Opportunities Index's performance.

DWX also outdoes IDV with regard to costs. The new fund charges just 0.45% in annual expenses versus IDV's 0.50%.

Top Five Countries (%)

Country	Weight
United Kingdom	24.55
Canada	16.83
Australia	10.52
Emerg. Markets	9.61
Italy	7.80

Written by Heather Bell

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Comments

[Paulo]

This is a brand new ETF and profound analysis based on experience cannot be expected of anyone, and it will not come from the issuers.
Now, 52% of this ETF is the U.K.(24.91%), Canada (18.29%), and Australia (8.79%). And 22.5% is financials and 21% consumer discretionary (but 38.3 energy and materials).
The Canadian and Australian currencies tend to go up or down more or less at the same time and if the pound sterling decides to decline at the same time, the objective of fully diversifying currency risk might be compromised.
So the currency issues might, given certain alignments of the currency stars, signficantly impact performance.
Also, if there is a severe recession or prolonged slowdown in the U.S., the stock markets in the U.K., Canada, and Australia will not decouple and, believe it or not, the U.S. dollar could actually rise significantly against these currencies (which is not what you want to happen if you buy this ETF) until the U.S. economy went into recovery and good times rolled again.
The volume is not there yet on this new ETF, but it deserves better than that.