Navigating Through 2024 Markets: Rating Upgrade For DTH (NYSEARCA:DTH)

In this article, I provide a brief update on the WisdomTree International High Dividend Fund (NYSEARCA:DTH), outlining its characteristics, the current market trends, and how the ETF might perform in 2024.

From my point of view, 2024 could be less exciting for the stock market than anticipated. Factors such as geopolitical tensions, presidential elections in 40 different countries, excessive valuations, and overly optimistic expectations regarding interest rate cuts are some key elements that could negatively impact asset valuations. However, DTH could be interesting for diversification within equity portfolios and to bring stability.​

The ETF Composition

As discussed in my previous article, “DTH: A Quick Update Why After 6 Months It’s Still A Sell,” the DTH ETF focuses on high-dividend companies, especially large caps, outside the US and Canada, offering good diversification both in terms of sectors and geographical allocation.

Currently boasting a good dividend yield of 5.94%, the ETF stands out with favorable multiples compared to other equity ETFs. Specifically, it has a price/earnings ratio of x8.10 and a price/sales ratio of x0.77.

In terms of holdings breakdown, there have been several changes since my last article. However, another positive aspect is the not overly concentrated nature of the top 10 holdings, accounting for only 22.82% of the total weight of the ETF.

Market’s View

To make informed investments in DTH, it is essential to first grasp the broader outlook on how the global market might do in 2024. Primarily, most analysts agree that 2024 will witness interest rate cuts. Inflation has normalized across most of the world (I’m talking about the countries in which DTH has holdings), with Europe reaching 2.9% in December 2023. This development pushes central banks to consider lowering rates, although the exact extent remains uncertain.

For example, in the UK, analysts suggest that the BOE (Bank of England) plans to initiate the first cut in May, followed by three more cuts before the end of 2024, lowering rates from 5.25% to 4.25%. The European Central Bank, despite reaching 4% in September, provided no indications of cuts in its recent meeting, despite the progress made in containing inflation and concerns about a potential economic slowdown. Conversely, in Japan (7.74% of DTH), the situation is very different, with rates at -0.1% and a loose monetary policy.

While interest rate cuts are generally positive for investors, the risk lies in excessive optimism leading to an overvaluation of assets, similar to the current scenario.

Geopolitical tensions, such as issues in the Red Sea and the blockage of routes in the area, pose a risk of a new surge in prices and consequently a delay in rate cuts. This would consequently result in a drop of risky assets’ price.

Another source of uncertainty revolves around the presidential elections in 40 different countries in 2024. Risky assets typically do not favor unpredictability, and certain outcomes considered “unfavorable” by the market could trigger sell-offs.

Precisely for these reasons, particularly tied to geopolitical uncertainty, I believe that 2024 will demand a considerable amount of caution. On the positive side, this caution is favorable for DTH, as, despite its underperformance, it has consistently demonstrated a certain level of solidity over the years.

Performance and Other Risks

As explained in my last article, one of the ETF’s significant issues was competition from bond rates. Despite the 5.94% coupon, shares still present a risk, while investing in bonds ensures similar but risk-free returns. Examining European bonds, where the majority of the ETF is allocated, the one-year rates in England and Germany are 4.92% and 3.26%, respectively, posing strong competition for DTH. Looking at the 10-year rates, the situation is different, with a rate of 2.36%, which is still below the DTH yield.

The point is clear: short rates are still a good alternative to the ETF. However, this could change in 2024. Indeed, while it is almost impossible to predict this year’s central banks’ moves in the short to medium term, it is almost certain that in 2024 there will be some rate cuts. Therefore, this could potentially strengthen the investors’ interest in the DTH dividend.

Finally, regarding the performance, in the chart below, I have compared some indexes which are similar to the composition of DTH.

As can be seen, a characteristic to consider is the underperformance (one-year performance in this graph), which started a few years ago, as highlighted in my last article. However, this underperformance can be partially explained by the more defensive composition and the very high coupon, which compensates for the negative price trend.

Bottom Line

In conclusion, DTH, despite being well-diversified on paper, is not so efficient because of its performance, and could be negatively impacted by economic and geopolitical issues in 2024.

On the other hand, it could represent a good alternative in order to invest in the world equities market, benefiting from a high dividend and lower volatility thanks to the low-volatile sectors and good geographical diversification. Therefore, in my opinion, it’s a balanced compromise to capitalize on a potential increase in the stock market, while having “guarantees” in the event of a decline, thanks to the generous dividend. For these reasons, I give a “Hold” rating.