The global exchange-traded fund industry is dominated by the United States, both in terms of number of issuers and combined assets under management, but Canada is home to a vibrant ETF market as well. At the end of the third quarter, there were about 450 ETFs trading in Toronto with over $81 billion in combined assets under management, according to ETFGI data.
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WisdomTree Investments, Inc. (WETF), a name scores of U.S. advisors and investors are intimately familiar with, entered the Canadian ETF market earlier this year. Additional choice is always good news for ETF investors, but it can be argued that WisdomTree's entry into the Canadian market is potentially significant for Canadian income investors.
New York-based WisdomTree, the world's tenth-largest ETF issuer, has a deep tradition of dividend-based strategies, an array of which have been widely embraced by U.S. advisors and investors. That is notable for Canada because interest rates north of the border are low by historical standards.
Canada, Interest Rates And The ETF Environment
Canada's benchmark interest rate is currently 0.5 percent and some data points indicate the Bank of Canada could pare rates to 25 basis points next month. Compare that with 2008 when Canadian borrowing costs were north of 4 percent.
Canadian investors looking for portfolio diversity and the potential for increased yield and income with U.S. equities can consider the WisdomTree U.S. Quality Dividend Growth Index ETF (TSX: DGR). While DGR is new to Canada, Canadian investors should note the concept has proven successful in the United States.
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DGR, Toronto's DGRW Counterpart
DGR is the Toronto-listed counterpart to the popular WisdomTree U.S. Quality Dividend Growth Fund, WisdomTree Trust (DGRW). DGRW debuted in New York in mid-2013 and today has nearly $1 billion in assets under management.
DGR follows the WisdomTree U.S. Quality Dividend Growth Index CAD, which adheres to a similar methodology as DGRW's underlying benchmark. Translation: Canadian investors get a best of both world's proposition with DGR because the ETF's weighting methodology combines the growth and quality factors.
Specifically, the growth element to DGR's methodology emphasizes long-term earnings growth while the quality tilt focuses on return on assets and return on assets. The result is a lineup of 280 U.S.-based dividend payers built on a forward-looking foundation that helps Canadian investors efficiently access U.S. companies with strong dividend growth prospects going forward.
As is the case with DGRW, DGR's technology exposure is high relative to older dividend strategies. The Toronto-listed ETF allocates nearly 21 percent of its weight to that sector with top 10 holdings venerable tech names such as Microsoft Corporation (MSFT) and Apple Inc. (AAPL).
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