European equity markets have shown strength this year, rebounding from last year’s pandemic-related slowdown and ranking among the top performers year-to-date¹.

Many companies in cyclical sectors like Consumer Discretionary and Financials have reinstated their dividend payments this year after being forced to suspend them in 2020.

The eurozone economy appears to be firing on all cylinders. In the second quarter, the eurozone’s growth, measured by GDP, expanded by 2% quarter-on-quarter², outpacing that of the U.S. and China. The third-quarter earnings season has been strong so far, showing a net earnings surprise of 7% driven³ by upward revisions to net income margins—the highest upward revisions to net income margins since 2010.

Consumption demand aided by the economic reopening and accommodative monetary policy has helped unleash excess savings that had accumulated during the pandemic, and increases on the production side have been led by the services sectors.

WisdomTree provides exposure to different European themes through the below funds:

These Europe-focused Indexes rebalanced earlier in November as part of our annual developed international rebalance process. 

Fundamental Changes

After WTEHIP’s rebalance, the ETF Ticker HEDJ, will have a slightly higher dividend yield, lower P/E valuation and higher profitability metrics relative to its benchmark the MSCI Eurozone Index. Similarly, WTEDG (ETF Ticker EUDG) and WTESC (ETF Ticker DFE) will show similar characteristics versus the MSCI Europe Index with the quality basket, EUDG exhibiting a higher quality factor and the SmallCap basket, DFE, trading at a larger P/E discount.

Please read the prospectus carefully before investing.

Portfolio Fundamentals

Sector Changes

As a result of European Consumer Discretionary and Financials companies reinstating their dividends, HEDJ saw its exposure to these sectors increase, while its exposure to the Consumer Staples, Information Technology and Materials sectors was reduced. Overall, HEDJ's exporter focus continues to drive its overweight in the Consumer Staples, Health Care, Industrials and Materials sectors versus its benchmark the MSCI Eurozone Index.

For EUDG, the effect of reinstated dividends was also seen in its increased exposure to Consumer Discretionary, while rising commodity prices and increased inflation caused a significant increase in exposure to the Materials sector. Overall, EUDG's quality and dividend growth focus resulted in overweight allocations in Consumer Staples and Consumer Discretionary, as well as Health Care, Industrials and Materials relative to its MSCI Europe Index benchmark.

The European small-cap exposure of DFE saw a combination of the other Funds’ sector increases. Dividend reinstatements, along with increased commodity prices, caused WTESC to increase exposure to the Consumer Discretionary, Financials and Industrial sectors. European small-cap exposures will give investors overweight exposures to cyclical sectors relative to the broad MSCI Europe Index.

Sector Exposures

Country Changes

The largest country-level changes in HEDJ were an increase in exposure to Spain and reduced exposure to the Netherlands. 

The increase in exposure to Spain can be attributed to Banco Santander, S.A., and BBVA, S.A., being added to the portfolio after they reinstated their dividends. On the other hand, the reduction to the Netherlands is related to Unilever’s unification of its legal structure under its U.K. entity at the end of 2020.

For EUDG, the largest changes were increased exposure to Germany, as companies like Adidas AG and Covestro AG were added to the portfolio, and reduced exposure to the U.K. through British American Tobacco being dropped from the portfolio for its increased composite risk score (CRS) as a result of its high dividend yield. 

Small caps and the DFE portfolio saw its most important increase in exposure to Italy due to Italian banks reinstating their dividend payments. This portfolio saw a decrease in exposure to Switzerland and the Netherlands.

Country Exposures

¹ MSCI Europe Index outperforming MSCI EAFE and MSCI EM Indexes year-to-date. Data as of 11/5/2021. Source: WisdomTree, Bloomberg.
² Data as of 08/17/2021. Source: Bloomberg.
³ Data as of 10/29/2021. Source: Bloomberg.