Are Vanguard FTSE Developed Markets ETF (VEA) and WisdomTree Europe Hedged Equity Fund (HEDJ) Strong ETFs to Own? With strong retail sales stoking interest rate worries and the growing risk of bank downgrades, the stock market could remain highly volatile in the near term. Amid an uncertain macroeconomic...
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With strong retail sales stoking interest rate worries and the growing risk of bank downgrades, the stock market could remain highly volatile in the near term. Amid an uncertain macroeconomic backdrop, should you invest in ETFs Vanguard FTSE Developed Markets (VEA) and WisdomTree Europe Hedged (HEDJ)? Read more to find out….
Wall Street ended lower yesterday, with the S&P 500 declining 1.16% and the Nasdaq Composite down 1.14% as stronger-than-expected retail sales stoked interest rate worries; meanwhile, Fitch warned of possible downgrades on dozens of banks. Amid this, the Big Short fame Michael Burry seems to be betting against Wall Street and the economy.
Hence, we think it could be wise to add quality ETFs, Vanguard FTSE Developed Markets ETF (VEA) and WisdomTree Europe Hedged Equity Fund (HEDJ), to your portfolio for diversification and stable returns.
For the first time in more than a year, the pace of consumer price increases accelerated on an annual basis. In July, the consumer price index (CPI) grew 3.2% from a year ago, slightly below the 3.3% forecast but higher than the 3% recorded in June. Despite the uptick in the headline number, the July report showed that underlying inflation continued its cooling streak.
Core CPI, which excludes the more volatile food and energy prices, rose 0.2% for the month and was up 4.7% year-over-year. July is the fourth consecutive month that the annual core CPI has eased, and the rate landed below a Dow Jones consensus estimate of 4.8%. While inflation has come well off its 40-year highs of mid-2022, it is still well above the Fed's 2% target.
As inflation cools, consumer spending held up well in July, with retail sales increasing 0.7% for the month, higher than the 0.4% Dow Jones estimate. Excluding autos, sales grew a solid 1%, against the 0.4% forecast. Stronger-than-expected retail sales stoked worries that interest rates could stay higher for longer.
Furthermore, a Fitch Ratings analyst warned that the banking sector has inched closer to another source of turbulence, with the risk of sweeping rating downgrades on dozens of banks, including JPMorgan Chase. The ratings agency cut its assessment of the banking industry's health in June, a move that analyst Chris Wolfe said went unnoticed as it didn't trigger downgrades on banks.
However, Wolfe told CNBC that another one-notch downgrade of the industry's score from AA- to A+ would force Fitch to reevaluate ratings for the more than 70 banks it covers. Also, last week, Moody's downgraded ten small and midsized banks and warned that cuts could come for another 17 lends, including Truist and U.S. Bank.
Amid growing economic uncertainty, Michael Burry, the "Big Short" investor, just bet more than $1.6 billion on a stock market crash. According to SEC filings released this week, Burry's fund, Scion Asset Management, bought $866 million in put options against a fund that tracks the S&P 500 and $739 million in put options against a fund that tracks the Nasdaq.
Against this backdrop, investing in best-performing ETFs VEA and HEDJ could be wise for enhanced portfolio diversification and steady returns.
Let's discuss the fundamentals of these ETFs in detail:
Vanguard FTSE Developed Markets ETF (VEA)
VEA provides comprehensive, vanilla exposure to the developed market equity space outside the US, including Canada, and major markets in Europe and the Pacific. This fund covers large-, mid-, and small-cap stocks. Like various Vanguard funds, this ETF is impressive in its depth of holdings and cost efficiency.
VEA tracks the performance of the FTSE Developed ex US All Cap Tax Index. With $114.891 billion in assets under management (AUM), VEA's top holding is Nestle S.A (NSRGY) which has a 1.54% weighting in the fund. It is followed by ASML Holding NV (ASML) and Samsung Electronics Co., Ltd. at 1.36% and 1.25% weightings, respectively. The fund has a total of 4500 holdings.
The ETF has an expense ratio of 0.05%, lower than the category average of 0.40%. The fund's net inflows came in at $3.70 billion over the past six months and $8.97 billion over the past year. VEA's NAV was $45.30 as of August 15, 2023.
VEA pays an annual dividend of $1.20, translating to a yield of 2.61% at the prevailing price level. Its four-year average dividend yield is 2.91%. Over the past three years, its dividend payments have grown at a CAGR of 4.8%. The ETF has paid dividends for 13 consecutive years.
The fund has gained 7.3% year-to-date and 4.3% over the past year to close the last trading session at $45.29. It has a beta of 0.89.
VEA's POWR Ratings reflect its robust outlook. The ETF has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
VEA has an A grade for Trade and Buy & Hold. It has topped the A-rated 80-ETF European Equities ETFs group.
Click here to see all of VEA's POWR Ratings.
WisdomTree Europe Hedged Equity Fund (HEDJ)
HEDJ tracks index designed to provide exposure to European equities while at the same time neutralizing exposure to fluctuations between the Euro and the U.S. dollar. This fund covers dividend-paying companies that are domiciled in Europe and are traded in Euros, with at least a $1 billion market cap and derive at least 50% of their revenue from exports outside of Europe.
HEDJ tracks the performance of the WisdomTree Europe Hedged Equity Index. With $1.41 billion in AUM, HEDJ's top holdings include Stellantis N.V. (STLAM) with a 6.90% weighting, Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) at 4.36%, and followed by ASML Holding NV (ASML) and LVMH Moet Hennessy Louis Vuitton SE (MC) at 4.27% and 4.11%, respectively.
HEDJ currently has 127 holdings in total. Over the past three months, the fund's inflows were $28.25 million, and $52.17 million over the past six months. In addition, HEDJ's 0.58% expense ratio compares to the 0.46% category average.
HEDJ's annual dividend of $1.39 translates to a 3.43% yield on the current share price. The fund's four-year average yield is 2.39%. Its dividend payouts have increased at a CAGR of 43.2% over the past three years and 9.8% over the past five years.
The fund has gained 11.3% year-to-date and 12.4% over the past year to close the last trading session at $40.12. Also, it has a beta of 0.88. The ETF's NAV was $40.23 as of August 15, 2023.
HEDJ's fundamental strength is reflected in its POWR Ratings. The ETF has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
HEDJ has a grade A for Trade and Buy & Hold. It also has a B grade for Peer. It is ranked #11 out of 80 ETFs in the A-rated European Equities ETFs group.
To access all the POWR Ratings for HEDJ, click here.
What To Do Next?
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VEA shares were unchanged in premarket trading Wednesday. Year-to-date, VEA has gained 9.32%, versus a 16.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet's keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet's looks to help retail investors understand the underlying factors before making investment decisions.
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