Looking Abroad to Lift Yields in Equities

FlexShares offers three international income-generating strategies: the FlexShares International Quality Dividend Defensive Index Fund (IQDE B+), the FlexShares International Quality Dividend Dynamic Index Fund (IQDY B+), and the FlexShares International Quality Dividend Index Fund (IQDF A-). 

Non-U.S. equities compose nearly 40% of global equity market capitalization when looking at the MSCI ACWI Index, as of November 2021, and while the U.S. is the largest source of dividends, it only represents about half of the global dividend pool, according to MSCI.

The trio of FlexShares’ international dividend ETFs, which is part of the firm’s stable of proprietary factor strategies, was launched in 2013. IQDE, IQDY, and IQDF each carry an expense ratio of 47 basis points and share the same competitive benchmark, the MSCI AC World ex USA Index (NDUEACWZ).

IQDE, IQDY, and IQDF follow an index that selects dividend-paying companies in developed and emerging markets outside the U.S. The index then weights the portfolio toward companies that earned the highest “dividend quality” scores. To prevent unintentional concentrations, the methodology caps the weighting of individual securities, industry groups, sectors, and regions, according to ETF Database.

The three funds are distinguished by their approach to market beta — much like FlexShares’ domestic variations of the same theme, according to ETF Database.

IQDY aims for a little more risk than the market, IQDE for a little less, and IQDF tries to match it. In practice, all three funds share many of the same top holdings, including Royal Bank of Canada and L’Oreal. The difference comes down to weighting, with IQDY leaning a little more on volatile tech stocks than IQDE and IQDF, according to ETF Database.

In terms of total assets, IQDF is the largest of the three, with $642 million in assets under management. IQDF is trailed by IQDY with $86 million and IQDE with $72 million in assets under management.

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