International diversification isn’t just an investing buzz phrase. It’s a viable, important strategy and one accessible with the ALPS International Sector Dividend Dogs ETF (NYSEArca: IDOG).

ALPS identifies the five highest-yielding securities in the 10 GICS sectors on the last trading day of November. From there, IDOG is rebalanced quarterly in an effort to keep sector weights in the area of 10% and individual holdings at around 2%.

With valuations compelling, there are multiple reasons why IDOG is attractive in the current environment.

“Adding international exposure is one of the first steps toward a diversified portfolio. Even minimalist investors usually carve out a portion of their portfolios for non-U.S. stocks after adding exposure to domestic stocks and bonds,” writes Morningstar analyst Amy Arnott. “International stocks are subject to myriad factors that can lead to divergent performance, including local market conditions, currency movements, exposure to different sectors and industries, and political and economic factors. These traits mean they often show different performance patterns–both relative to the U.S. market and versus other international markets.”

Diversification Matters with IDOG

Ex-U.S. developed market dividend payers often feature larger yields than their U.S. counterparts, an assertion proven by comparing large- and mega-cap dividend stocks from familiar dividend sectors such as consumer staples, energy, financial services, and telecommunications.

For many decision-makers, rules-based ETFs are considered “hybrid” investment assets. The ETFs combine traditional passive indexing methodologies with additional rules that mimic actively managed styles.

Due to their factor-based styles, these ETFs tend to generate outperformance, come with lower fees, and diminish volatility. Plus, there’s the added benefit of income, another theme IDOG has leverage to.

Diversification is increasingly important when considering the state of international equity correlations to other markets, including the U.S.

“With the novel coronavirus pandemic affecting economies, companies, industries, and people on a global scale, most major international markets dropped at least as much as the U.S. market in early 2020,” notes Arnott. “Japan was the only major regional market to maintain a lower correlation with the United States. It also suffered lighter losses than most other global markets.”

Some international funds are outpacing the S&P 500, with analysts noting the good feelings that come from the leadership changes. There are things such as movement in cyclicals, which is good for internationals, and some strategic plays as far as the overperforming tech giants.

Other international developed market dividend ETFs include the FlexShares International Quality Dividend Dynamic Index Fund (NYSEArca: IQDY), ProShares MSCI EAFE Dividend Growers ETF (CBOE: EFAD), and the SPDR S&P International Dividend ETF (NYSEArca: DWX).

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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.