Investors have moved assets abroad this year at least in part due to a tumultuous U.S. economic landscape. From a mini-bank crisis to rising rates and bank inflation to slowing growth, investors have reason to look abroad. That said, in such a diverse ETF ecosystem, finding the right foreign equities ETFs is important. The ETF duo of the ALPS International Sector Dividend Dogs ETF (IDOG) and ALPS Emerging Sector Dividend Dogs ETF (EDOG) could provide one helpful route to investing internationally.
Investors reduced their U.S. equity mutual fund and ETF holdings by $7 billion through late July per Goldman Sachs. At the same time, those investors added $56 billion to non-U.S. equity mutual funds and ETFs. Investors have made a clear move abroad even while the market rally has proved its resilience, suggesting lingering concerns about looming headwinds.
They may have a point when looking at those possible headwinds. Not only are U.S. stocks still expensive, but the S&P 500’s success remains top-heavy. Just a handful of big firms have driven the vast majority of the S&P 500’s growth this year. What’s more, the Fed looks set for at least one if not more rate hikes. That would add even more lagging reverberations to a credit market still digesting previous hikes.
Taken together, eyeing foreign equities may be a solid diversification play right now. What’s more, given that many non-U.S. economies, particularly emerging markets, already went through rate cycles a year ago or more, one may avoid similar challenges to those posed by the Fed. Investors looking abroad, then, may want to consider the likes of IDOG and EDOG for their portfolios.
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Both strategies apply the “Dogs of the Dow” theory to their respective areas, international and emerging markets stocks. IDOG tracks an equal-weighted index that picks the five firms with the highest dividend yields in each of the ten international GICS sectors.
EDOG also tracks an equal-weighted index, picking five firms with the highest yields in the ten GICS sectors except real estate. IDOG charges 50 basis points (bps), while EDOG charges 60 bps. IDOG has returned 13.8% YTD and EDOG has returned 6.1% YTD.
Why, then, look to the duo for foreign equities exposure? The duo’s use of dividend yields can help indicate foreign firms’ outlook and health. Those firms with strong dividends tend to have pretty positive overall outlooks, which can be a potent indicator for investors who may not have great information about certain foreign markets. Taken together, the duo represents an intriguing route abroad for investors looking for foreign equities ETFs.
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vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for EDOG and IDOG, for which it receives an index licensing fee. However, EDOG and IDOG are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of EDOG or IDOG.
