What is DOL? (Pros, Cons, and Strategies)

In today's globalized economy, diversifying your investment portfolio with international holdings can be a prudent strategy. One fund that often stands out for investors seeking dividend income from large companies outside the United States is the WisdomTree International LargeCap Dividend Fund, commonly known by its ticker symbol DOL. This blog post will explain what DOL is, its benefits and drawbacks, and strategies for investing in it.

What is DOL?

DOL is an exchange-traded fund (ETF) that focuses on large-cap dividend-paying companies outside the U.S. The fund aims to provide broad exposure to international markets while emphasizing companies that offer high dividend yields.

DOL tracks the WisdomTree International LargeCap Dividend Index, which selects companies based on their dividend-paying capabilities and other key metrics. This helps investors tap into the dividend income from established international companies, thereby diversifying away from the U.S. market.

Key Features of DOL

• Companies must have consistently paid dividends over the past year
• Companies selected have a market cap of at least $1 billion
• Emphasizes companies with high dividend yields and strong financial health

After selecting eligible companies, the fund focuses on those companies that are deemed to have sustainable dividend payouts and strong financial metrics, such as profitability and balance sheet strength.

DOL Composition

DOL holds a diverse array of companies from various sectors such as healthcare, telecommunications, and financial services. For example, some of its top holdings include British American Tobacco (BTI), Royal Dutch Shell (RDS.A), and Novartis (NVS). The ETF is weighted towards large, well-established companies that have a track record of paying consistent dividends and are less volatile compared to smaller-cap stocks.

Pros of DOL

Diversification

One of the most compelling reasons to invest in DOL is diversification. By including international stocks in your portfolio, you reduce your exposure to any single country's economic downturns. This is particularly beneficial given the interconnected nature of today’s global economy.

High Dividend Yield

DOL aims to invest in companies with higher-than-average dividend yields. This makes it an attractive option for income-focused investors. Consistent dividend payouts can provide a stable income stream, which is especially appealing for retirees or those seeking regular income.

Exposure to Large-Cap, Stable Companies

The fund emphasizes large-cap companies that are generally more stable and less volatile than small or mid-cap stocks. This adds another layer of security for risk-averse investors looking to add international exposure to their portfolios.

Cons of DOL

Currency Risk

One of the downsides of investing in international funds like DOL is currency risk. Since the fund consists of non-U.S.-based companies, fluctuations in the value of the U.S. dollar relative to other currencies can impact the fund’s performance. Investors need to consider this added layer of risk when allocating money to DOL.

Geopolitical Risks

International investments come with geopolitical risks, including changes in government policies, economic sanctions, and political instability in foreign countries. These factors can potentially impact the dividends and overall performance of the companies within the fund.

Management Fees

DOL has an expense ratio of 0.48%, which is higher compared to some other ETFs that focus on U.S. stocks. Over the long term, these fees can add up, slightly reducing net returns.

DOL Investment Strategies

Given its unique features and focus on high dividend yields from international large-cap stocks, DOL can serve various roles in a diversified portfolio.

Income-focused Strategy

For investors seeking steady dividend income, DOL is an excellent option. The fund’s focus on high-yielding international companies can provide a more diversified income stream. Combining DOL with other income-focused investments can create a well-rounded, resilient income strategy.

Long-term Growth Strategy

While DOL is primarily an income-focused fund, it can also be part of a long-term growth strategy. The inclusion of large-cap companies with robust financial health and consistent dividends means that it can offer reasonable capital appreciation along with dividend returns over the long term.

Tactical Allocation

For investors who wish to time their exposure to international markets, DOL can be a tactical allocation in response to favorable international market conditions. This could include shifts in economic cycles, currency valuations, or geopolitical events that might benefit international large-cap companies.

Conclusion

WisdomTree’s International LargeCap Dividend Fund (DOL) offers a compelling mix of income and diversification. Its focus on high-yielding, large-cap international companies makes it appealing for income-focused investors looking to diversify their portfolios. However, potential investors must be mindful of currency and geopolitical risks, as well as the fund’s higher management fees.

Whether used as an income generator or a diversifier, DOL serves multiple investment strategies and can be a valuable addition to a well-rounded, diversified portfolio.