Over the last several months, we’ve seen an increased debate about not only where investors should be allocating, but also how. To answer the first question: While the U.S. has generally been the place to be since 2008, our base case going into 2017 was that there were likely better values to be had in international markets. As for the second question, as one of the earliest proponents of fundamentally weighted Indexes, WisdomTree continues to believe in the ability of dividends to help compound returns over time.

In 2013, our focus expanded to include not only companies with attractive dividend yields but also businesses that may have the ability to meaningfully boost their dividends over time. As a result, we believe that screening dividend-paying companies for quality as well can provide a powerful combination in the current market environment. In our view, the Index that best embodies this for the international markets is the WisdomTree International Quality Dividend Growth Index.

EAFE Factor¹ Performance

Year-to-date, the returns of EAFE have significantly outpaced the returns of the S&P 500 Index (14.5% vs. 10%).2 However, we have also seen a rather wide dispersion across most commonly followed investment factors against the market. As illustrated in the chart below, nearly every fundamental factor managed to outperform MSCI’s market cap-weighted approach. The lone exception was that value lagged. In the remainder of this piece, we seek to highlight the primary drivers of performance relative to a market cap-weighted approach.

Value (YTD return: +11.6%)

EAFE value is currently 10% under-weight Consumer Staples relative to the market. Year-to-date, Consumer Staples have been the second strongest performer just behind Technology. Additionally, with financials lagging in a falling-rate environment, value has naturally lagged the broader market.

Size (YTD return: +17.2%)