When picking out an index-based exchange traded fund, people may find many options with similar investment themes, so it is important to take the time and look deeper into the underlying benchmark.
For example, it is important to look over the underlying index of dividend-paying international stock ETFs as investors have many options available to them, writes Corey Hoffstein for Forbes.
From the bigger issuers, investors can choose from long-standing options like the iShares International Select Dividend ETF (NYSEArca: IDV), PowerShares International Dividend Achievers Portfolio (NYSEArca: PID) and SPDR S&P International Dividend ETF (NYSEArca: DWX). [Global Dividend Hunt With ETFs]
Additionally, relatively newer options include the FlexShares International Quality Dividend Index Fund (NYSEArca: IQDF), Market Vectors MSCI International Quality Dividend ETF (NYSEArca: QDXU) and ProShares MSCI EAFE Dividend Growers ETF (NYSEArca: EFAD).
Don’t let the “international dividend” appellation determine your investment decisions as the various funds can exhibit varying performances. Year-to-date, IDV rose 1.6%, PID gained 2.3%, DWX returned 4.5%, IQDF increased 4.9%, QDXU was up 1.4% and EFAD advanced 7.4%.
To get a better understanding of how these different funds perform, investors should look under the hood. Hoffstein looks for security eligibility and weighting when scrutinizing the underlying ETF benchmarks.
For instance, IDV requires that components be taken from developed countries in Europe, Pacific, Asia and Canada. Securities must also meet dividend payout consistency and growth metrics, along with profitability and minimum liquidity levels. Holdings are then weighted by dividend yield.
PID only includes companies that have continually increased dividends, and holdings are weighted by dividend yields. The combination of listing requirements and dividend growth means that the majority of components are from developed countries, like the U.K. and Canada.
DWX follows its own liquidity, profitability and dividend growth criteria. The index also weights components by dividend yield. Unlike the previous two offerings, DWX also includes emerging markets.
IQDF implements a proprietary scoring model to determine a so-called quality factor, so holdings typically include large quality companies with a stable history. Additionally, the undelrying index trise to improve on the parent index’s dividend yield.
QDXU excludes U.S. companies and targets foreign companies taken out of the MSCI ACWI ex USA Index that have issued higher than average dividend yields.
Lastly, EFAD targets developed Europe, Asia and Australia companies with the longest track records of year-over-year dividend growth. The ETF tries to capitalize on the fact that the MSCI EAFE’s dividend growers hve outperformed the broader EAFE. [How to tap Into Developed Market Dividend Growth]
Since each ETF is different, investors should understand the differences to ensure they know what they are getting themselves into.
For more information on ETFs, visit our ETF 101 category.
Max Chen 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.