As yields continue to rise on benchmark government debt, many investors are starting to panic about the income producing securities in their portfolios. These investments—be they in the REIT, utility, or even bond segments—have been crushed over the past month or so, leading many to abandon high income picks altogether (see REIT ETFs Crushed: Time to Panic?).
After all, long term bond ETFs like ZROZ have lost more than 15% in the past three months, while many REIT ETFs, such as IYR or VNQ, have plunged by a similar amount in the same time frame. These securities—and ones holding similar assets—have been mainstays of portfolios for quite some time, leaving some investors at a loss for where to go for generating solid amounts of income in this type of environment.
Look to Europe Instead
While many emerging market securities have been impacted by this trend as well, some in international developed markets have held up in this environment. These have actually appreciated as of late, and they still provide investors with solid yields too.
In particular, many key European markets have apparently turned it around in recent months, pushing up asset prices across the continent. Add this to a bout of euro currency strength, and dollar-denominated investors see a solid trend in place for European securities (see all the European Equity ETFs).
These European stocks may thus prove to be relatively-well insulated from the current bout of Fed taper talk and thus be better dividend choices in this kind of market environment. Plus, thanks to some sluggish trading until very recently, many European stocks are trading at decent values, something that can’t really be said for many of their peer high dividend securities in the U.S.
Given this, investors can certainly look abroad for yield at this time, especially considering the price appreciation in many markets as of late. For an easy way to do this while obtaining exposure across a number of developed markets, any of the following dividend-focused ETFs could easily accomplish the task:
Vanguard FTSE Europe ETF (VGK)
This is one of the most popular European ETFs on the market, with assets of nearly $8 billion. The product is also relatively cheap, charging investors just 12 basis points a year in fees, while seeing solid volume of 2.3 million shares a day.
The fund has roughly one-fifth of its assets in the financials sphere, followed by consumer staples (14%), health care (12%), and industrials (12%). British stocks take the biggest holding, followed by Swiss companies, then a variety of euro zone nations (also see 3 European ETFs Holding Their Ground).
The product has added about 3.1% over the past month, compared to a 2.4% loss for the S&P 500 in the same time frame, or a nearly double digit loss for a REIT ETF. However, the 12 month yield for this fund comes in just under 5%, making it a very solid income destination.
iShares International Select Dividend ETF (IDV)
For a broader international dividend play, investors could consider IDV. This product tracks the Dow Jones EPAC Select Dividend Index, a benchmark of roughly 100 companies from around the developed world.
The ETF skews towards Europe (roughly two-thirds of the portfolio) though a few nations like Australia and Canada make up sizable allocations as well. This product also offers a solid allocation to mid and small cap securities (nearly 30% of the portfolio), while its sector focus centers on financials, energy, utilities, and industrials.
IDV has also had a solid past month, gaining about 4.1% in the time frame. Plus this ETF is also sporting a 12 month yield around the 5.0% level, while its 30-Day SEC Yield comes in at 4.9% (also see Can This High Yield European ETF Surge Higher?).
WisdomTree Europe SmallCap Dividend ETF (DFE)
For a small cap look at the solid trends appearing in Europe, WisdomTree’s DFE could be an excellent choice. This product follows a dividend-weighted index, giving investors exposure to about 230 small cap securities in Europe.
Industrials take the top allocation from a sector look (25%), followed by consumer discretionary (15%) and technology (14%). Country exposure is once again focused on the UK, while Sweden and Italy also receive double digit allocations.
Of the group, this small cap ETF has actually had the best month, adding about 6.4% in the time frame. Its yield leaves a little to be desired at 3.4%, though it is still definitely an income destination for most investors at this time.
Talk of the taper in the U.S. market has crushed a number of yield-focused securities lately. Many products in this space have seen losses exceeding 10% in the past three months, marking the first big losses for many of these product categories.
This has forced many investors to go off the beaten path in order to find high yielding securities that aren’t facing such severe capital losses as well. Three such options in this market are VGK, IDV, and DFE, as all three of these pay great yields and have beaten out the S&P 500 over the past month (also read 3 ETFs for Rising Interest Rates).
So if you are in the market for yield but are concerned about the recent trends in the space, consider the aforementioned ETFs as some overlooked plays that could be better choices in this uncertain time for income-centric investors.
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