Live at MICUS: The Advisor’s Guide to Navigating International Equity Opportunities

Non-U.S. equities remain a key ingredient to portfolio diversification, but with recent headwinds, it is essential that advisors position their clients’ portfolios toward the best opportunities.

“If we do have recession — it looks very likely in Europe, it may very well happen in the U.S. — the stocks that do best coming out of recession are typically cyclical,” Sarah Ketterer, CEO of Causeway Capital Management, said on May 18 at the Morningstar Investment Conference. “I think about all those industrials and materials and financials, and they’re going to come roaring back, and we think it’s absolutely essential to be positioned for that.”

Developed markets in April were hit by slowing global growth, continuing geopolitical risks arising from Russia’s invasion of Ukraine, elevated commodity prices, and hawkish tightening comments from developed country central banks. Value-oriented sectors have remained resilient, while pressure on growth-oriented sectors will likely remain as markets monitor red-hot inflation and the conflict in Ukraine, according to ALPS.

While international stocks have been hit particularly hard recently, Sammy Simnegar, portfolio manager at Fidelity Investments, said that the rate rises and inflation are much more bearish for emerging markets compared to developed markets because of the inherent fragility of the former.

The ALPS International Sector Dividend Dogs ETF (IDOG) is an international fund that offers exposure to companies in developed markets, tilting toward value. 

IDOG applies the “dogs of the Dow” theory on a sector-by-sector basis using the S-Network Developed Markets (ex-Americas) Index as its starting universe of eligible securities. The strategy selects the five highest-yielding securities in 10 of the 11 GICS sectors, real estate excluded. 

Equally weighting at the stock and sector level may provide diversification while avoiding sector biases, according to ALPS. Due to the equal weighting structure, the fund offers exposure to energy and financials, among other sectors known to outperform during periods of inflation and rising rates.  

The goal of the fund is to eliminate the counter-cyclical sector biases present in traditional yield-weighted dividend strategies by picking the same number of stocks from each sector, according to ETF Database. 

IDOG is currently most exposed to Japan (19.02%), the United Kingdom (18.18%), Australia (11.60%), Spain (8.66%), France (8.34%), Sweden (7.85%), Germany (7.76%), Italy (6.03%), Norway (3.51%), and Austria (2.14%), as of May 17, according to ALPS’ website. 

Other funds to consider for developed markets ex-U.S. exposure include the Dimensional International High Profitability ETF (DIHP) and the VictoryShares International High Div Volatility Wtd ETF (CID).

For more news, information, and strategy, visit the ETF Building Blocks Channel.