Investors have been flocking to international exchange traded funds this year in search of equity exposure with better valuations than U.S. stocks. Some ETFs grant investors international exposure with the benefit of dividends and a currency hedge to protect against the potentially damaging effects of currency volatility.
The Deutsche X-trackers MSCI All World ex-US High Dividend Yield Hedged Equity ETF (NYSEArca: HDAW) is one such ETF. HDAW targets companies with higher-than-average dividend yields relative to their market-cap-weighted counterparts across both developed and emerging countries, excluding the U.S. Moreover, the ETF includes a currency hedge which helps negate the negative effects of weakening foreign currencies or a strengthen dollar on overseas returns.
Across the globe, bond market yields have been sliding as foreign central banks try to weaken their currencies, engage in loose monetary policies and add quantitative easing. The nominal yields for the benchmark 10-year notes of the U.S., U.K., Germany and Japan have trended lower over the past 15 years, according to a Deutsche Asset Management research note.
HDAW, which hit an all-time high Tuesday, holds 253 stocks. The ETF is up 21.5% over the past six months, a performance that is nearly 500 basis points ahead of the MSCI EAFE Index over the same period.
“In today’s low-yielding interest rate environment, investors searching for additional sources of income may consider a high-dividend yield approach,” according to Deutsche. “High-dividend yielding strategies seek exposure to companies with higher-than-average dividend yields relative to their market-cap-weighted counterparts with the goal of capital preservation and potential long-term capital appreciation.”
At the geographic level, HDAW allocates over 36% of its combined weight to British and Canadian stocks. France and Germany, the Eurozone’s two biggest economies, combine for nearly 19% of the ETF’s weight.
Low interest rates in the U.S. have sent investors flocking to dividend stocks and exchange traded funds in recent years. With central banks throughout the developed world paring rates and engaging in monetary easing, government bond yields are falling, giving investors good reason to consider international dividend ETFs.
While international investors have chased after yield-generating assets, foreign dividend yields are still higher than payouts from U.S. companies. For example, the U.K.’s FTSE 100 and Germany’s DAX are among the major international equity benchmarks with higher dividend yields than the S&P 500.
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