Once again, the S&P 500 is trouncing the MSCI EFA Index. That’s potentially prompting some investors to think international equities aren’t worth their trouble.
On the other hand, there are pockets of opportunity in select ex-U.S. developed markets. And there remains a credible equity income proposition to be had in some of those countries. That indicates international investing still merits evaluation. Investors can get in on that act in conservative fashion is with the ALPS International Sector Dividend Dogs ETF (IDOG ).
IDOG follows the S-Network International Sector Dividend Dogs Index. The fund the value of dividends as they pertain to international investing. Many of the major developed market indexes outside the U.S. are known for sporting higher dividend yields than domestic benchmarks. But IDOG’s favorable traits don’t end there. For the three years ending June 9, the ETF returned 24.1%. In the same time period, the MSCI EAFE Index gained just 10.6%.
IDOG: Less Risky Than Meets the Eye
One of the most common reasons many investors in the U.S. often eschew international stocks is the perception of increased risk. That’s true with bonds, too. And it’s accurate to some extent with emerging market assets. However, IDOG is a different story.
Proving that dividends provide a buffer, IDOG’s annualized volatility over the past three was below that of both the MSCI EAFE Index and the S&P 500. That’s just one example. But it’s proof that with right strategy, investors can mitigate some of the risk often associated with venturing outside the U.S.
“The overseas results stand in stark contrast to the domestic outcomes,” noted Morningstar’s John Rekenthaler. “Whereas leaving the US once meant courting danger, international diversification has powerfully earned its keep during recent decades, with both bonds and stocks posting mild worst-case performances. Since 1950, their deep risk has looked nothing like that of the distant past.”
Impressive Bullishness
IDOG’s bullishness is all the more impressive when considering the last three years have included some economic stagnation in Europe, which accounts for the bulk of the ETF’s geographic exposure, as well as Russia’s invasion of Ukraine. Additionally, European dividends are increasing. And some experts believe there’s still value in the diversification offered by international assets.
“Overseas diversification has delivered on its promise. As the managers of target-date funds can ruefully attest, investing in foreign securities does not necessarily increase a portfolio’s returns, but without question it reduces deep risk. That is very much a meaningful benefit,” concluded Rekenthaler.
VettaFi LLC (“VettaFi”) is the index provider for IDOG, for which it receives an index licensing fee. However, IDOG is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of IDOG.
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