Designing dividend and currency-hedged ETFs are a forte of WisdomTree Investments. The issuer has a nice array of dividend weighted and currency-hedged ETFs and has tasted immense success in those products. Most recently, WisdomTree brought about a currency-hedged dividend growth ETF, targeting Japan (read: Four Reasons to Buy WisdomTree ETFs).

The fund trades in the name of WisdomTree Japan Hedged Dividend Growth ETF (JHDG - ETF report). Let’s take a look at this new entrant and evaluate its long-term prospects in the industry.

JHDG in Focus

The new ETF follows the WisdomTree Japan Hedged Dividend Growth Index. The fund consists of about 250 companies that have a market cap of at least $1 billion. The stocks are screened on a combined basis of growth and quality factors in order to give a comprehensive approach to dividend investing.

Growth factors like long-term earnings growth expectations and quality factors like historical return on equity, and return on assets are the criteria looked upon while including stocks to build up the index. The stocks need to exhibit higher earnings yield than dividend yield for an entry to the index.

The index includes companies paying cash dividends regularly. Along with this efficient technique of stock selection, the fund also looks to hedge currency translations.  It charges 43 bps in fees.

Consumer discretionary rules the fund with over 20% exposure. Industrials (19.6%), Telecom (15.35%), IT (15.20%) and Consumer Staples (11.1%) also get double-digit weight.  NTT DoCoMo Inc DCM (5.8%), Nippon Telegraph & Telephone C NTT (5.3%) and Canon Inc CAJ (4.63%) round out the top three spots of the ETF.

How Does it Fit in a Portfolio?

International dividend investing especially in Japan can be a wise bet for yield-hungry investors as rates are still prevailing at rock-bottom levels in the country. This, coupled with a massive fiscal and monetary stimulus bolstered the appeal for dividend investing in Japan as it ensures investors decent yields on a regular basis.

The issuer has also noted that ‘Japanese equities have been one of the best performing equity markets in the world since November 2012’. The country’s key stock index Nikkei hit a fresh 15-year high in early April after the Bank of Japan (BOJ) hinted at the ‘moderate recovery trend’ at the world’s third-largest economy (read: Nikkei Hits fresh 15-Year High: 3 Japan ETFs to Buy).

This makes the launch well timed. However, while policy easing is inflating Japanese stock prices; it is weighing on the value of yen. This is especially true given the strength in the greenback.  Thus the product has adopted a currency hedging technique to ward off the sluggishness of Japanese currency and safeguard investors’ return from currency risk (read: Currency Hedged ETFs Top Q1 Asset Flows).

ETF Competition

Focus on dividends and hedging technique in the Japan equities ETF space is no longer a fresh idea as the space already has some popular ETFs including MSCI Japan Hedged Equity Fund (DBJP), Japan Hedged Equity Fund (DXJ) from WisdomTree and Currency Hedged MSCI Japan ETF (HEWJ) (read: Top Ranked Currency Hedged ETFs in Focus on Dollar Surge).

However, what makes JHDG unique is its combination of growth and value factors.  Given the attention to earnings growth, ROA and ROE, it would result in a more growth-oriented dividend portfolio as opposed to several other dividend funds which mainly revolve around value factors.

DBJP currently yields 9.21% (as of April 16, 2015) while DXJ and DXJS yield a respective of 1.67% and 1.05%. The underlying index of JHDG, WisdomTree Japan Hedged Dividend Growth Index, yields 2% in dividend, as per the issuer.

Moreover, its ROE and ROA also appear to be the highest in comparison to some equivalent indices. JHDG also charges less than the above-mentioned ETFs. From that point of view, JHDG should emerge triumphant and face no hurdle in garnering investor interest, going forward.