The ALPS International Sector Dividend Dogs ETF (IDOG ) outpaced broad international and U.S. indexes last month.
Despite global recessionary fears causing a rush to quality names to begin the year across Europe, better-than-expected economic growth and above-consensus company earnings have revived inflationary pressures, which could lead to a continued recovery in deep-value international names, according to SS&C ALPS Advisors.
IDOG declined 1.85% last month while the SPDR S&P 500 ETF Trust (SPY ) fell 3.54% and the Vanguard Total International Stock ETF (VXUS ) dropped 5.16%, according to ETF Database.
Sticky inflation coupled with global interest rates remaining higher for longer will be favorable for developed international equities as cheaper valuations offer opportunities where U.S. stocks appear expensive. According to SS&C ALPS Advisors, this is predominantly international value and cyclical sectors such as energy, financials, materials, and industrials, due to their strong pricing power.
IDOG offers approximately 63% exposure to developed countries in Europe with an equal-weighted sector exposure. The fund has a 4.16% yield across a portfolio of heavily discounted deep-value names.
IDOG’s deep value methodology focuses on cheaper, high-yielding companies, exhibiting a 6.20x price-to-earnings (P/E) ratio compared to the STOXX 600 Europe P/E of 13.26x, according to SS&C ALPS Advisors.
During the past two decades, global growth has outpaced global value; however, forecasts anticipate that value will continue to be in favor due higher structural inflation levels. Notably, international markets have a much greater value tilt compared to U.S. stocks, with a 47% allocation to value sectors compared to U.S. markets’ 27%, according to JPMorgan.
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