August was the worst month for U.S. stocks since May 2012 and the worst month for ETF outflows ($16.1 million as of last Thursday) since January. Global ETFs, single-country emerging markets funds in particular, languished last month. However, some dividend ETFs weathered the August outflow storm.
Both the Vanguard Dividend Appreciation ETF (VIG) , the largest U.S. dividend ETF by assets, and the iShares International Select Dividend ETF (IDV) saw noticeable inflows last month, indicating investors still have an appetite for U.S. and international dividend funds. Another option for income investors that need global exposure to consider is the SPDR S&P International Dividend ETF (DWX) . [Global Dividend ETFs for Income Diversification]
In the current market environment of rising U.S. Treasury yields, ex-U.S. developed market dividend ETFs can prove useful to income investors on at least two fronts. First, some international payout funds have not proven as vulnerable as their U.S.-focused peers to rising Treasury yields. DWX lost 2.5% last month compared to a loss of 4.1% for the S&P 500. [International Dividend ETFs and Rising Interest Rates]
DWX tries to reflect the performance of the S&P International Dividend Opportunities Index, which is comprised of the 100 highest dividend yielding international stocks and ADRs. The result is a $1.27 billion fund with a stout dividend yield of 6.82%. [ETF Spotlight: SPDR International Dividend ETF]
At 6.82%, DWX’s dividend yield is more than triple that of VIG’s and more than double the current yield on 10-year U.S. Treasuries. DWX’s yield does speak to the notion that investors can grab higher dividend yields in select ex-U.S. developed markets. The ETF’s robust yield should also be viewed as compensation for the somewhat higher risk that comes with this ETFs compared to other funds advertised as international dividend plays.
That means DWX is not entirely focused on developed markets. Australia’s is the fund’s top country weight at 22.3%. The U.K., Canada and Finland combine for another 27.4% of the fund’s weight, meaning three of DWX’s top-four country weights have AAA sovereign credit ratings.
However, DWX does offer exposure to 10 emerging markets, which says more than a third of the ETF’s country allocations lies in the developing world. Overall, emerging markets combine for about 12% of DWX’s weight, a number that while not excessive is still larger than what is found in other dividend ETFs that are not directly advertised as emerging markets income plays.
Still, with the Eurozone showing signs of breaking out of recession, DWX could be an ETF to keep an eye through the end of the year. DWX trades 1.6% below its 50-day moving average and nearly 4% below its 200-day line.
SPDR S&P International Dividend ETF
ETF Trends editorial team contributed to this post.
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.