Finding An International Bargain

Two words describe the current trend in international equity investing: value and dividends. A number of value-tilted and dividend-paying ETFs have been breaking to the upside, some reaching new lifetime heights. It’s no wonder. Dividend yields for the largest seasoned funds are two and a half times that of the S&P 500.

But is there real value in value? The average expense ratio for the five largest international high-value/high dividend funds is 52 basis points. It’s fair to ask if investors are getting their money’s worth.

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When benchmarked against the Vanguard FTSE Developed Market ETF (NYSE Arca: VEA), a market-cap weighted index of large-, mid- and small-cap offshore companies, all five value/dividend funds offer premium yields. For a price. A substantial price. VEA’s annual holding cost is just one-tenth that of the funds in the table.

So, is there value for all that money among these funds? A couple outgun the benchmark return to yield positive alpha coefficients and information ratios, so maybe so.

For a fund with a $4.6 billion asset base, the iShares International Select Dividend ETF (Cboe BZX: IDVseems remarkably nimble. The fund tracks a dividend-weighted index of the highest-yielding securities issued by non-U.S. companies. The fund’s tiered weighting scheme tilts the portfolio toward mid- and small-cap companies, resulting in a table-topping alpha value. The fund’s positive information reflects the stability of the fund’s outperformance.

The Invesco FTSE RAFI Developed Markets ex-U.S. ETF (NYSE Arca: PXF) looks beyond dividend yields to build its portfolio. The index methodology for this $1.3 billion fund also screens for cash flow, revenue and book value, making it lean toward larger-cap issues.

Another yield-weighted portfolio, the $592 million First Trust Dow Jones Global Select Dividend Index Fund (NYSE Arca: FGD), emphasizes dividend growth and payout ratios. To pass through the dividend growth screen, a portfolio candidate must offer a current yield higher than its five-year average.

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Disclosure: None.

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