Looking Overseas for Yield in ETFs
August 7th, 2012 at 7:00am by Tom Lydon
The search for income has gone overseas, as investors are finding opportunity in economies that have lower valuations than those in the U.S.
Focused stocks and ETFs often have higher yields than those found in the U.S. [Best ETFs for Income and Dividends]
“The typical arguments for dividend investing also apply to the emerging markets. Dividends are the largest contributors to total return for investors over the long term and can also signal effective management and healthy fundamentals,” Patricia Oey for Morningstar wrote. “In the near and medium term, we expect emerging markets to show stronger earnings growth, as well as faster dividend growth, relative to the developed world. ”
In total, assets from mutual funds and ETFs that present income from a global mix including U.S. stocks have doubled in assets since 2009 to $12.1 billion, according to Lipper data.
Fund performance from this sector has been so outstanding that Lipper Data added two new categories to help track assets: international equity-income funds, which invest more than 75% of their holdings outside the U.S., and global equity-income funds, which invest more than 25% but less than 75% of their holdings outside the U.S., reports Steve Rosenbluth for The WSJ. [Top International ETFs for Dividends]
According to the numbers, U.S. equities are still performing those of overseas and emerging markets. The Standard & Poor’s 500-stock index returned an annualized 13.5% over the past three years, through July 31, compared with 8.5% for Lipper’s global equity-income category, and 4.7% for the international equity-income category.
Investors should pay close attention to the sectors that dividend ETFs track. This can help avoid over or under exposure to various stocks and can help investors dodge volatility. For example, many dividend funds invest about 20% of their assets in finance, so investors should pay close attention to what companies play a big role in the portfolio, Greg Savage, a senior portfolio manager at BlackRock’s iShares said.
For the long-term, analysts and investors find that strategies that employ income yielding stocks have consistently beat the market. [ETF Spotlight: SPDR International Dividend]
Some international dividend ETFs include:
- SPDR S&P International Dividend (NYSEArca: DWX)
- iShares Dow Jones International Select Dividend Index (NYSEArca: IDV)
- WisdomTree DEFA Fund (NYSEArca: DWM)
- WisdomTree Europe Small Cap Dividend Fund (NYSEArca: DFE)
- Global X SuperDividend ETF (NYSEArca: SDIV)
- S&P Global Dividend Opportunities Index (NYSEArca: LVL)
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.