A new international ETF was just introduced by AdvisorShares — AdvisorShares Athena High Dividend ETF (DVI) — that is a go-anywhere ETF using behavioral research to identify top dividend-paying stocks. It’s one of several global dividend funds investors can choose from.
As international ETFs become more popular with American investors, the question is no longer whether you should invest outside the United States. You should, which means the only remaining question is where.
Yardeni Research published a report on August 13 about the performance of global stock markets year-to-date. According to Yardeni’s report, the world indices are up 2.9% on the year — 240 basis points worse than the S&P 500. That would seem to lend credence to the idea that home-grown investments are your friend.
Not so fast, though.
Just as small-caps sometimes outperform large caps, the same things occurs with countries. One minute the U.S. markets are flying high; the next they’re not. Don’t let country bias hurt your investment returns; remember that 55% of the world’s market cap is held in non-U.S. equities.
Rather than pick the best international ETF, the second-best, etc., I’m going to recommend the best international ETF from five different fund companies. May the best fund company win.
Best International ETF — Vanguard Total International Stock ETF (VXUS)
At 0.14% annually the expense ratio of the Vanguard Total International Stock ETF (VXUS) is cheaper than 88% of ETFs with similar holdings. If you want to cover a big chunk of the world’s markets outside the U.S., this particular international ETF is a great way to do it.
While most of its 2,406 stocks are invested in developed markets like Japan, the United Kingdom and Canada (37.5% of the portfolio), emerging markets such as the BRICS account for 18% of the $12.9 billion in total net assets.
A total of 45 countries receive some kind of weighting, and 22 have at least 1% of the overall portfolio. Japan is the No. 1 holding, at 15.5%. Ex-pat Canadians can take solace in the fact Canada is the third-largest position with 7.5%.
A $10,000 investment in VXUS over the past three years through August 13 is worth $13,724 today, for an annualized total return of 11%. Expenses for VXUS run 0.14%, or $14 for every $10,000 invested.
Best International ETF — iShares Core MSCI Total International Stock ETF — (IXUS)
The iShares Core MSCI Total International Stock ETF (IXUS) is a part of what iShares refers to as its core group of ETFs, which are meant to act as the foundation of an investment portfolio providing exposure to broad markets around the globe. By accessing major asset classes, iShares believes you are free to make more targeted bets with some of its other ETFs.
How much of this concept is simply marketing is an argument for another day.
Suffice it to say, the IXUS is a good international ETF for those looking to make a quick strike into global markets with very little fuss. Although not quite as cheap as the VXUS with its 0.16% net expense ratio, the IXUS invests in a total of 3,433 stocks which are all part of the MSCI ACWI ex USA IMI index.
From a holdings perspective the IXUS differs from the VXUS in several ways other than the number of stocks held. First, its UK position slightly higher at 12.5%. Second, the VEU invests 1.1% of its portfolio in Russia while IXUS relegates it to 0.84%. Lastly, IXUS’s top holding is Nestle (NSRGY) while VXUS goes with Royal Dutch Shell (RDS.A).
A $10,000 investment in IXUS at its inception on October 18, 2012, was worth $12,578 at the end of July, a profit of $2,445 and an annualized total return of 13%.
Best International ETF — PowerShares International Dividend Achievers Portfolio (PID)
Dividends are a hot topic today as low interest rates continue to force investors into stocks in order to generate enough retirement income. One international ETF doing a good job with dividends is the PowerShares International Dividend Achievers Portfolio (PID), which tracks the performance of the NASDAQ International Dividend Achievers Index.
To be included in this particular index, a company must have increased its annual dividend in each of the last five years and beyond. Reconstituted every March, PID rebalances four times a year in March, June, September and December. In existence since September 2005, it has $1.3 billion in total net assets invested across 69 holdings.
Forget those other ETFs with thousands of stocks, this one operates with less than 100 of the most solid companies anywhere. A big exception with PID is that it has a U.S. weighting of 29.2% while the others have few, if any, U.S. holdings. Ordinarily, I wouldn’t include this but I do think it’s one of PowerShares’ better ETFs, so it stays.
A $10,000 investment in PID over the past five years through August 13 is worth $14,569 today for an annualized total return of 13%. But it’s worth noting that PID is on the expensive side compared to our previous entries, with an expense ratio of 0.56%.
Best International ETF — WisdomTree Global Equity Income Fund (DEW)
The first thing you’ll likely notice when you look at WisdomTree Global Equity Income Fund (DEW) is that its expense ratio — 0.58% — is the highest of the five funds I’ve discussed. Sure, it’s important to keep a lid on fees, but sometimes it’s okay to pay a little more if it meets your objectives.
With income in the title it’s no wonder DEW has an SEC 30-day yield of 3.5%. PID invests in a total of 512 holdings across 38 different countries, including the U.S. (at a 18.2% weighting, the largest). Interestingly, it doesn’t invest in India, a BRICS country I would have assumed would hold more favor than Russia. No matter. It has a roughly 10% weighting in the BRICS, which is about the same as other international ETFs.
At the end of the day, this ETF does what its name implies: It generates income. Almost 4% annually is nothing to sneeze at when you’re getting close to zero in the bank.
As far as performance goes, a $10,000 investment over the past three years through August 13 is worth $14,118 today for an annualized total return of 12%.
Best International ETF — Schwab International Equity ETF (SCHF)
If you’re cheap, the Schwab International Equity ETF (SCHF) is the international ETF to buy, with an annual expense ratio of just 0.08%. It’s almost as if they’re paying you to own the fund. But seriously, you’re not going to find a cheaper international ETF.
So, why is SCHF so cheap? Because Schwab has decided to become a major player in the ETF space, and low fees are a way to entice investors to your ETFs.
To date, SCHF has attracted $2.6 billion in total net assets since inception in November 2009. Obviously, the low fee has attracted a lot of attention, but so too should its SEC 30-day yield of 2.46%. That yield might not be as high as DEW, but then again SCHF’s not pretending to be an income fund.
SCHF has a total of 1,170 holdings with 10.7% invested in its top 10 stocks. As far as countries go, the U.S. isn’t a part of this particular international ETF. The top three countries have a combined weighting of 45% (Canada came fourth at 7.58%), which is considerably higher than any of the other ETFs discussed.
Equally important for some is the fact it invests in developed countries only by tracking the returns of the FTSE Developed ex US Index. If you’re an emerging markets or BRICS fan, SCHF isn’t for you.
A $10,000 investment over the past three years through August 13 is worth $14,304 today for an annualized total return of almost 13%.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.