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  1. Volatility Resource Channel
  2. This Foreign Dividend ETF Duo Is Raking in Yields
Volatility Resource Channel
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This Foreign Dividend ETF Duo Is Raking in Yields

Nick Peters-GoldenApr 12, 2023
2023-04-12

Dividends are back in vogue right now, but current income alone may not be enough to make expensive and potentially volatile U.S. equities a particularly appealing place to be. For some, it may make more sense to invest abroad in a foreign dividend ETF. Such a fund could potentially offer current income and diversification away from a complicated U.S. market while also mitigating or even removing the barrier posed by currency.

That’s where a pair of ETFs like the Franklin FTSE Europe Hedged ETF (FLEH A+) and the Franklin FTSE Japan Hedged ETF (FLJH B) can play a key role. Europe and Japan have each enjoyed phases of positive U.S. investor attention so far this year, with the Euronext 100 index up nearly 5% over the last month and the Nikkei 225 up 0.3% in that same time frame.

Europe’s outlook has seen its 2023 growth projection increase from 0% to 0.3%, and should the European Central Bank navigate persistent inflation, underlying consumer spending could still help the continent ride a COVID recovery into some positive numbers. Japan, meanwhile, has seen its government take both fiscal and monetary stimulus stems to support, but it has also benefitted greatly from the post-COVID recovery, particularly in tourism.

See more: 3 Low-Fee Single Nation ETFs to Diversify Outside U.S.

Those pictures offer a pretty notable contrast to a scary headline-filled landscape in the U.S., from a lingering series of bank and commercial real estate issues to the almost-forgotten problem of the U.S. debt ceiling. Whether those or other issues have driven investors towards dividends, FLEH and FLJH are seeing eye-popping annual dividend yields.

FLEH, which charges 9 basis points (bps) to track an index of mid- and large-cap stocks and hedges out the currency challenges that come with foreign equities, has seen a 21.3% annual dividend yield compared to 3.8% for its ETF Database category average, for example. FLJH — which is broadly similar to FLEH, but for Japan — charges the same fee and has offered a 24.6% annual dividend yield compared to 6.7% for its average.

Taken together, a low-fee foreign dividend ETF like either FLJH or FLEH can be a low-risk play that helps buoy portfolios with current income. With inflation data arriving this week in earnest, and a possibly heady earnings season around the corner, looking abroad for dividends could be a worthwhile option in the weeks and months ahead.

For more news, information, and analysis, visit the Volatility Resource Channel.

VettaFi is an independent publisher and takes responsibility for our edit staff, research, and postings. Franklin Templeton is not affiliated with VettaFi and was not involved in drafting this article. The opinions and forecasts expressed are solely those of VettaFi and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.


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