In an effort to diversify portfolios, advisors can’t ignore the potential of overseas exposure. The ebb and flow of the markets at home don’t necessarily correlate to market movements abroad—this non-correlation can serve investors well when it comes to diversification.
“An effective measure of diversification benefits is a correlation: how much different assets move in synch with each other,” wrote Michael Lane in an iShares article. "A correlation of one means they move up or down at the same rate, while a negative correlation means they move in opposite directions. Interestingly, the correlation of international and U.S. equities has declined since the early 2000s, belying the widespread belief that there are limited diversification benefits of international investing.
For broad-based ETF exposure to international equities, investors can look at the Vanguard FTSE Developed Markets Index Fund ETF Shares (VEA ). VEA seeks to track the performance of the FTSE Developed All Cap ex US Index.
The fund employs an indexing investment approach designed to track the performance of the FTSE Developed All Cap ex US Index, a market-capitalization-weighted index that is made up of approximately 3873 common stocks of large-, mid-, and small-cap companies located in Canada and the major markets of Europe and the Pacific region. The adviser attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
Additionally, looking overseas could also yield potential dividend opportunities. As such, to take out the guesswork, here are a few other international funds to consider with an emphasis on dividends:
- FlexShares International Quality Dividend Dynamic Index Fund (IQDY ): seeks investment results that correspond generally to the Northern Trust International Quality Dividend Dynamic IndexSM. The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater financial strength and stability characteristics relative to the Northern Trust International Large Cap Index.
- FlexShares International Quality Dividend Index Fund (IQDF ): seeks investment results that correspond generally to the price and yield performance of the Northern Trust International Quality Dividend IndexSM. The index reflects the performance of a selection of companies that, in aggregate, possess greater financial strength and stability characteristics relative to the Northern Trust International Large Cap Index, a float-adjusted market-capitalization weighted index of non-U.S. domiciled large- and mid-capitalization companies.
- FlexShares International Quality Dividend Defensive Index Fund (IQDE ): seeks investment results that correspond generally to the price and yield performance of the Northern Trust International Quality Dividend Defensive IndexSM. The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater financial strength and stability characteristics relative to the Northern Trust International Large Cap Index.
