As U.S. Inflation Soars, Think Overseas Dividends
JThe consumer price index was higher than expected at 8.5% in March, and although US stock markets initially rallied on hopes that this could be the top, many economists believe the inflation could remain high until the end of the year.
Consumer price increases have occurred at a rate not seen since the stagflation of the 1970s and 1980s, and although core inflation has risen more slowly at 6.5%, it is still the highest since August 1982, reports CNBC. Wages fell further relative to costs, with real average hourly wages falling 0.8% in March, which could continue to add to rising inflationary pressures.
“Overall, this report is encouraging, at the margin, although it is far too early to be sure that the next base impressions will be so weak; a lot depends on the trajectory of used vehicle prices, which is very difficult to predict with confidence,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
As the U.S. faces six more interest rate hikes, investors are looking for income opportunities in areas other than fixed income, and an increasingly popular choice has been corporate payouts. dividends. As volatility persists in both US and overseas markets, investing in for-profit companies may be a feasible option to weather the storm of uncertainty.
For investors looking beyond the US markets for allocation, the WisdomTree Dynamic Currency Hedged International Equity Fund (DDWM) could be a great option as it provides exposure to dividend-paying companies in international developed markets outside of the US and Canada, while hedging currency exposure.
The benefits of currency hedging
Currency hedging is becoming increasingly important in a volatile environment as various countries begin to adopt divergent fiscal policies. Jeremy Schwarz, CFA and Global CIO of WisdomTree, believes the US dollar offers one of the best diversifiers and hedges for portfolios with its -0.46 correlation to the S&P 500 over the past 36 months.
Image sources: WisdomTree Blog
“While I would argue that you should bet less on currencies by adopting a currency hedged strategy framework, I also believe that currency hedged strategies offer the most attractive diversification property for the current Fed cycle and the negative correlation provided by the dollar”, writes Schwarz in a WisdomTree Blog.
DDWM seeks to track the WisdomTree Dynamic Currency Hedged International Equity Index, a dividend-weighted index comprised of companies incorporated in Europe, Japan, Australia, Hong Kong, Israel or Singapore. Companies that pay larger dividends are weighted more heavily with industry and country representation capped at 25% (except real estate, with a 15% cap).
The index hedges currency fluctuations, ranging from 0% to 100%, and updates the hedge ratios monthly. Coverage ratios are determined by three quantitative signals that are all equally weighted: momentum, interest rate differentials and value. By hedging the currency, it seeks to limit losses caused by the depreciation of foreign currencies against the US dollar and also to capture gains when foreign currencies appreciate against the US dollar.
DDWM has an expense ratio of 0.40% and can be used to replace or complement active or passive strategies in international, developed and all cap allocations.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.