DWX: Past Performance Is Concerning
Summary
- DWX is an international dividend ETF.
- It is overweight in Europe, utilities and financials.
- Total return since inception is underwhelming relative to competitors.
- Why I prefer DNL.
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This dividend ETF review series aims at evaluating products regarding their past performance and their current portfolio quality.
DWX strategy
The SPDR S&P International Dividend ETF (NYSEARCA:DWX) has been tracking the S&P International Dividend Opportunities Index since 02/12/2008. It has a portfolio of 100 stocks (120 holdings in total including cash in various currencies, funds and derivatives), a 12-month distribution yield of 3.53% and a total expense ratio of 0.45%.
As described by S&P Dow Jones Indices, eligible companies must be in the S&P Global ex-U.S. BMI, excluding China A-Shares, and have:
- at least US$500 million in float-adjusted market capitalization,
- at least US$5 million in 3-month median daily volume,
- at least 10% of known shares actually available to foreign investors,
- positive earnings-per-share (trailing 12-months),
- positive three-year dividend growth (a small decline is allowed for current constituents),
- a Funds from Operations Per Share to Dividend-Per-Share ratio greater than 100%,
- a dividend yield above the median yield of stocks that passed previous filters.
Then, remaining stocks are ranked based on risk-adjusted yield, defined as dividend yield divided by volatility of monthly dividend yields over the prior 36 months. The top 80 stocks are automatically added in the underlying index, then specific rules are applied to limit turnover of current constituents and reach a total of 100 stocks. Constituents are weighted based on trailing 12-month dividend yield, with a maximum of 3% by constituent, 25% by country, 25% by GICS sector and 10% for all trusts (including REITs). The underlying index is reconstituted annually, rebalanced semi-annually, and reviewed monthly for possible stock exclusion based on dividend criteria and corporate actions.
DWX Portfolio
About 52% of asset value is in Europe and the second region is Asia with 27%. The next chart lists the top 10 countries (with an aggregate weight about 80%). Canada is the heaviest one with about 15%, followed by Switzerland and Japan between 12% and 13%. Other countries are below 9%. China, Hong Kong and Russia weigh about 8% together: it is much less than a number of international dividend ETFs, and it is a good point for investors who are wary of geopolitical and regulatory risks.
DWX countries. Chart: author with Fidelity data.
The top two sectors are utilities (23.1%) and financials (22.3%), then come real estate (16.8%) and communication (12.3%). Other sectors don’t exceed 8% individually and 23% in aggregate.
DWX sectors. Chart: author with Fidelity data.
The portfolio is mostly in large-cap companies (62%).
Chart: author with Fidelity data.
The top 10 holdings, listed below, represent 20.6% of asset value. No holding weighs more than 3% as of writing, so the idiosyncratic risk related to individual stocks is low.
Name and US tickers (the fund may invest in local ticker) | Weight% | Sector | Local Currency |
Endesa S.A. (OTCPK:ELEZY) | 2.73 | Utilities | EUR |
GlaxoSmithKline plc (GSK) | 2.29 | Health Care | GBP |
Zurich Insurance Group AG (OTCQX:ZURVY) | 2.18 | Financials | CHF |
BCE Inc. (BCE) | 2.14 | Communication | CAD |
Telenor ASA (OTCPK:TELNY) | 2.10 | Communication | NOK |
TC Energy Corporation (TRP) | 2.07 | Energy | CAD |
MS&AD Insurance Group Holdings Inc. (OTCPK:MSADY) | 1.90 | Financials | JPY |
Royal KPN NV | 1.75 | Communication | EUR |
Red Electrica Corporacion SA (OTCPK:RDEIY) | 1.74 | Utilities | EUR |
TELUS Corporation (TU) | 1.73 | Communication | CAD |
Past performance compared to competitors
The next table compares DWX performance since March 2008 with four international dividend ETFs paying different yields (in decreasing order):
- The iShares International Select Dividend ETF (IDV), reviewed here (yield about 5.1%).
- The First Trust Dow Jones Global Select Dividend ETF (FGD), reviewed here (yield about 4.3%).
- The Invesco International Dividend Achievers ETF (PID), reviewed here (yield about 2.9%).
- The WisdomTree Global ex-U.S. Quality Dividend Growth (DNL) (yield about 1.6%).
Since 3/1/2008 | Total Return | Annual Return | Drawdown | Sharpe | Volatility |
DWX | 7.90% | 0.56% | -66.86% | 0.11 | 21.50% |
IDV | 53.80% | 3.19% | -65.14% | 0.23 | 21.31% |
FGD | 81.53% | 4.45% | -64.56% | 0.29 | 21.17% |
PID | 59.28% | 3.46% | -63.23% | 0.25 | 19.50% |
DNL | 139.73% | 6.59% | -37.47% | 0.43 | 16.69% |
Data calculated with Portfolio123, reinvesting dividends.
International funds have underperformed the U.S. market: SPY has returned 357% in the same time (11.7% annualized). DWX lags these four competitors in total return by a wide margin. Its annualized total return and Sharpe ratio (risk-adjusted performance) are close to zero. DNL, which has the lowest yield of this group, is the best performer by far.
In fact, DWX has suffered a capital decay close to 48% since inception, as shown on the next chart. It has almost erased distributions, resulting in a meager 7.9% total return in 13.5 years. This is before even accounting for tax on distributions and inflation.
DWX share price by TradingView on Seeking Alpha
This chart looks really bad for an income-seeking investor. The income stream is also likely to decrease in nominal value in the future: the yield cannot go up indefinitely to offset the capital decay.
Takeaway
DWX holds 100 international dividend stocks, mostly from developed countries. Europe represents more than half of asset value and the two major sectors are utilities and financials. The yield is quite attractive for income-seeking investors, but it has been erased by capital decay since inception. DWX might be used as an instrument for swing trading or tactical allocation, but an investment in this fund is very unlikely to provide a long-term, sustainable income stream. It is not unique in this regard: many high-yield instruments have been suffering significant capital decay and/or income stream decay. I prefer the WisdomTree Global ex-U.S. Quality Dividend Growth Fund. It is more balanced in sectors and countries, has better quality filters, a higher total return in the past and a lower risk measured in maximum drawdown and historical volatility. For transparency, a dividend-oriented part of my equity investments is split between a passive ETF allocation (DNL is part of it) and my actively managed Stability portfolio (14 stocks), disclosed and updated in Quantitative Risk & Value.
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This article was written by
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I am an individual investor and an IT professional, not a finance professional. My writings are data analysis and opinions, not investment advice. They may contain inaccurate information, despite all the effort I put in them. Readers are responsible for all consequences of using information included in my work, and are encouraged to do their own research from various sources.
Disclosure: I/we have a beneficial long position in the shares of DNL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.