Dividends And Value: An International Affair

By Todd Shriber via Iris.xyz

Ex-US developed markets stocks are struggling this year. As of Sept. 19, 2018, the widely followed MSCI EAFE Index is lower by 3.63%. The same is true of developed markets value strategies as the MSCI EAFE Value Index is also in the red on a year-to-date basis.

With ex-US developed markets, which are believed to be safer bets than emerging markets, trailing the S&P 500 and other major domestic equity benchmarks, investors may be inclined to increase domestic allocations at the expense of international exposure.

Increasing the inherent home market bias puts investors at risk of missing a developed markets rebound, an important point when noting leadership historically rotates between domestic and international equities. For example, prior to the global financial crisis (2003-2009), the MSCI EAFE Index and the MSCI Emerging Markets Index topped the Russell 1000 Index. Since 2010, domestic equities have consistently outperform international equivalents.

Perhaps chastened by the financial crisis, investors have ratcheted down exposure to international equities. Data confirm as much. An interesting data point is the skittishness toward ex-US stocks displayed by younger investors. Since the 2009, the reduction in international equity exposure by investors under 35 years old is more than double that of investors in the 35 to 50 demographic.1

Using Dividends To Rediscover International Stocks

Dividend-paying equities can be valid reentry points for pensive investors evaluating developed markets outside the U.S. For the three years ended Aug. 31, 2018, the S-Network International Sector Dividend Dogs Index delivered considerable out-performance relative to the MSCI EAFE Value Index and the Nasdaq Index International Dividend Achievers Index. Over that period, the S-Network International Sector Dividend Dogs Index was also less volatile than those competing benchmarks.

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