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New International Dividend Growth ETF by iShares in Focus

Zacks Equity Research

Demand for safe-haven assets has surged amid global growth slowdown, lackluster Q1 earnings, weak outlook and growing volatility across many asset classes. Dividend has been an area to watch out for as not all income products are low risks. Stocks that are hiking dividend continuously are on the other hand said to be the best bets.
 
Meanwhile, treasury yields are also showing a downtrend. Yield on 10-year Treasury notes fell by almost 40 bps to 1.84% as of May 23, 2016. This has made investors thirstier for yields lately (read: High Dividend Sector ETFs Hitting All-Time Highs).
 
Yield on Japan's benchmark 10-year government bond has been hitting record lows after it slid to sub-zero for the first time in February. Bank of Japan introduced negative interest rates earlier this year following the European Central Bank’s (ECB) footsteps. Denmark, Sweden and Switzerland adopted similar measures.
 
The ECB has also launched a more intensified economic stimulus and opted for multiple rate cuts and the expansion of its quantitative easing program to boost the economy. Monthly asset purchases were raised to EUR 80 billion from 60 billion previously (read: Surprise ETF Winners & Losers Post ECB Easing).
 
 
With the tone of the minutes from the April FOMC meeting, released last week, being more hawkish than expected, speculations have been rife about a rate hike in the upcoming Fed meeting in June. However, the timing and magnitude of such a hike is still uncertain. The factors – global growth worries and moderation in U.S. growth – which led the Fed to lower its number of rate hike estimates for 2016 from four to two are still very much present (read: Fed to Hike in June? Expected ETF Moves).
 
Because of these factors, dividend ETFs have gained a lot of popularity as investors continue to search for attractive and stable yield in this ultralow rate interest environment.
 
Probably this is why iShares recently rolled out a dividend growth ETF targeting international economies. In fact, the global footprint made the fund more attractive given the ultralow interest rate backdrop prevailing in most developed economies.
 
Below, we have highlighted the newly launched fund iShares International Dividend Growth ETF (IGRO).
 
IGRO in Focus
 
IGRO trading on the BATS Exchange tracks the Morningstar Global ex-US Dividend Growth Index, which provides exposure to international companies with a history of consistently growing dividends. The fund seeks to invest in global companies with healthy balance sheets and dividend growth potential.
 
It has has a net expense ratio of 0.22%. From a sector point of view, Financials dominates the fund with about 23% exposure, followed by Consumer Staples and Health Care with 18.7% and 14.5% allocation, respectively.
 
How Could it Fit in a Portfolio?
 
The ETF could be well suited for investors looking for securities hiking their dividend across the globe. It also offers diversification benefits. These low-risk vehicles are excellent options for investors looking to protect their portfolio in a bearish environment. With interest rates being low in most developed nations, the appeal of dividend ETFs has increased as these offer strong yields.
 
However, changes in currency exchange rates may affect the value of the fund’s investment adversely.
 
Competition
 
The ETF could face competition from other dividend ETFs with a global perspective. There are quite a few international dividend ETFs which specifically target this market. Of these, the popular fund, iShares International Select Dividend ETF (IDV), has a total asset base of $2.7 billion. This fund tracks the Dow Jones EPAC Select Dividend Index and trades in heavy volume of 902,000 shares per day and charges 50 bps in annual fees.
 
Another fund targeting the international dividend market space, SPDR S&P International Dividend ETF (DWX), has AUM of nearly $879.5 million and exchanges 166,000 shares a day. The fund has an expense ratio of 45 bps (read: Vanguard Rolls Out 2 Global ETFs that Focus on Dividend).
 
Apart from these, IGRO could also face competition from FlexShares International Quality Dividend Index Fund (IQDF) with an asset base of $378.5 million and PowerShares International Dividend Achievers Portfolio (PID) with AUM of $668.6 million.
 
IGRO looks attractive with a lower expense ratio as compared to IDV and DWX. The fund has a chance of making a name for itself if it manages to generate returns net of fees greater than the currently available products in this ETF space. IGRO’s focus on selecting dividend paying stocks with growth looks to be a great strategy.
 
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ISHRS-INTL DVGR (IGRO): ETF Research Reports
 
ISHARS-INTL SD (IDV): ETF Research Reports
 
SPDR-SP INT DIV (DWX): ETF Research Reports
 
FLEXS-IQD IF (IQDF): ETF Research Reports
 
PWRSH-INTL DVD (PID): ETF Research Reports
 
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Zacks Investment Research
 
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