It’s harder for U.S. ETF investors to play the recent surge in international stocks than you might think.
Reversing years of mediocre returns, stock markets outside the U.S. gained 16.7% in the 12 months that ended on Feb. 28, based on the S&P Global Broad Market Index. But if you are looking for an international ETF with a dividend focus and an expense ratio under 0.35%, there are only four. Two were launched last year, and the other two are just about a year old.
iShares International Dividend Growth ETF (IGRO, expense ratio: 0.22%) holds more than 400 dividend stocks of companies based outside the United States. While the cost of ownership is low, the cost of buying IGRO could be high. ETF.com lists the average bid-ask spread of the portfolio at 1.84%, perhaps the result of low trading volume.
This ETF is based on the Morningstar Global ex-U.S. Dividend Growth Index, which includes non-U.S. stocks that have had at least five years of uninterrupted dividend growth. Index candidates must have a positive consensus earnings forecast and a payout ratio of less than 75%. REITs and passive foreign investment companies are excluded. The ETF’s largest sector is financial services, and its biggest geographic concentration is developed Europe.
PowerShares S&P International Developed High Dividend Low Volatility Portfolio (IDHD, 0.3%) is a 100-stock ETF, weighted by yield. It is based on the S&P EPAC Ex-Korea Low Volatility High Dividend Index, which covers stocks in the developed Europe and Asia Pacific regions.
Why ex-Korea, which S&P Dow Jones Indices considers a developed country? I suspect it is to make the index comparable to MSCI benchmarks, which for historical reasons count South Korea (the world’s 11th largest economy) as an emerging market.
The index includes the 100 stocks with the lowest price volatility (in local currency) from among the 300 highest-yielding securities. There are limits on company and sector concentration. Real estate is the largest sector and Singapore the biggest country allocation.
Vanguard International Dividend Appreciation ETF (VIGI, 0.25%) holds approximately 200 stocks and tracks the Nasdaq International Dividend Achievers Select Index, which requires at least seven years of consecutive annual dividend increases. REITs are excluded and there are minimum trading volume requirements.
The index uses a modified market capitalization weighting, and individual companies may not exceed a 4% weight. Additional proprietary screening criteria are used, but not disclosed. At the end of January, health care was the ETF’s largest sector and 33% of the portfolio was in developed Europe.
Vanguard International High Dividend Yield ETF (VYMI, 0.32%) is based on the FTSE All-World ex-U.S. High Dividend Yield Index. That index excludes REITs and all companies that are forecast not to pay dividends in the coming 12 months.
Potential candidates are ranked by consensus forecast yield from highest to lowest. Roughly the top 55% of candidates are in the index. As of Jan. 31, VYMI’s largest sector exposure was in financial services, while developed Europe was the biggest geographic concentration.
When looking at an international dividend fund, you might want to consider comparing portfolio yields. The 30-day SEC yield might be helpful, but the SEC does not require fund companies to post that metric for international funds.
Some do, but Vanguard does not. The company says that because of currency moves and the different ways countries withhold taxes, the yield would fluctuate substantially from month to month.
The accompanying table uses Morningstar’s estimate of yield based on a fund’s historical holdings. For IGRO and IDHD, estimates are based on holdings on Feb. 28. But since Vanguard does not disclose its positions until 15 days after the end of the month, the estimates for VIGI and VYMI are based on Jan. 31 holdings.
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