Despite the ebb and flow of U.S. equities in anticipation of rate cuts, big tech has been the driving force behind the 2024 market rally. In turn, strong performance of U.S. equities could pay the wave for strength in international equities.
Central banks around the globe eventually loosening monetary policy could drive further gains for international equities. Global investment firm Morgan Stanley is already forecasting strength for international stocks after the U.S. has led the way for the past decade and a half.
“U.S. stocks have enjoyed a remarkable run over the past 15 years, especially compared to equity markets in other parts of the world,” Morgan Stanley noted. “But non-U.S. equities may come to play a more important role in investors’ portfolios over the next couple of years.”
Since the financial crisis of 2008, the firm specifically pointed out the S&P 500’s elite performance that saw it gain seven times its level in 2009. Now, the tide could be turning as international equities could be offering investors a value-oriented scenario, and one that can serve strategically well if a reversal occurs for U.S. equities.
“Given today’s rich U.S. equity valuations, non-U.S. stocks may offer an attractive way to hedge your portfolio against a potential U.S. market pullback,” Morgan Stanley added. “Such a downturn is possible as U.S. policymakers weigh an end to their extraordinary support of the economy amid stabilizing growth, inflation and employment trends.”
An International Dividend Option
Rate cuts and the dollar continuing to recede should also help international equities and exchange-traded funds (ETFs) focused on these assets. One in particular gives investors a dividend focus via the ALPS International Sector Dividend Dogs ETF (IDOG ).
IDOG seeks investment results that replicate as closely as possible the performance of the S-Network International Sector Dividend Dogs Index (IDOGX). With a 30-day SEC yield of 6.18% as of January 31, it’s an option for fixed income investors looking for other pathways toward yield distributions aside from bonds. This presents a compelling option given the anticipation of lower interest rates to come.
Additionally, the fund uses a discerning strategy that applies the “Dogs of the Dow Theory” on a sector-by-sector basis using the S-Network Developed International Equity 1000 Index as its starting universe of eligible securities. IDOG provides high dividend exposure across 10 sectors of the market by selecting the five-highest-yielding securities in each sector and equally weighting them.
The fund offers deep country diversification as well, searching for dividend opportunities in other countries like Japan and Hong Kong. With big tech moving the markets these days, it’s no surprise to see information technology as its top sector focus. But it also maintains exposure to other sectors like financials and industrials.
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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