Dynamic Approach to International Stocks Pays Off

The WisdomTree Dynamic International Equity Fund (DDWM) is significantly outperforming the S&P 500 in 2025, with a year-to-date return of 15.36%, driven by its focus on developed markets outside the U.S. and Canada. The fund's exposure to Japanese equities, where domestic-oriented companies are thriving due to wage growth and governance improvements, and European stocks, boosted by increased defense spending and idiosyncratic alpha opportunities, are key factors in its success. WisdomTree's global head of research, Christopher Gannatti, notes that supportive factors like AI adoption, defense expenditures, and M&A activity could sustain European stock performance.

Analysis

International equities, particularly in developed markets, have demonstrated notable outperformance against the S&P 500 since the beginning of 2025, with the MSCI EAFE Index showing significant gains. The WisdomTree Dynamic International Equity Fund (DDWM), a $603.7 million fund, exemplifies this trend, delivering a 15.36% year-to-date return and trading near its 52-week highs. DDWM's strategy focuses on developed market stocks outside the U.S. and Canada, resulting in a portfolio heavily weighted towards developed Asia-Pacific and European equities. The fund's 20% allocation to Japanese stocks is benefiting from domestic-oriented companies that are outperforming exporters, driven by wage growth, improved corporate governance, and targeted capital allocation, as noted by WisdomTree's Christopher Gannatti; Japanese authorities are also actively promoting shareholder-friendly reforms such as buybacks and dividends. In Europe, which significantly contributes to DDWM's 2025 performance, equities are rebounding, largely attributed to increased defense spending. This aligns with DDWM's 18.1% allocation to industrial stocks, its second-largest sector exposure. Gannatti further highlights that European core sectors like banking and defense are profiting from a steepening yield curve, increased defense commitments, and recovering earnings, with high stock-level dispersion indicating opportunities for idiosyncratic alpha. Continued support for European equities is anticipated from catalysts including AI adoption, rising defense expenditures, German fiscal expansion, and robust M&A activity.

Key Decisions for Investors

• Investors may consider increasing exposure to international developed market equities, given their current outperformance and supportive underlying factors, potentially through vehicles like DDWM.
• Monitor the ongoing corporate governance reforms in Japan and the sustained momentum in European industrials and defense sectors, as these are key drivers for funds with similar geographic and sectoral tilts.
• Evaluate opportunities for idiosyncratic alpha in European markets, focusing on companies benefiting from increased AI adoption, defense spending, and M&A activity, which could provide differentiated returns.