iShares International Dividend ETF: A Global Winner – iShares International Select Dividend ETF (BATS:IDV)

Look back to go forward.

– Sir John Templeton

The iShares International Select Dividend ETF (IDV) is a great way to gain international exposure to high-yielding companies and is something that I mentioned in the Lead-Lag Report last week. I think that 2020 will be the year where global equities finally play catch-up to the S&P 500 and return better than what the U.S. does overall. In looking at IDV, especially, I think the geographical exposure is ripe for a rebound.

The U.K., Australia, Italy, Sweden, and France are their top exposures, with 23.56%, 15.19%, 9.72%, 8.32%, and 6.73%, respectively. I think that dividend investing is something that has been overlooked in the last number of years, as most winners have been in the growth, tech space. This is a holding that can diversify your holdings if you have run along with the tech winnings of the 2010s, as it could be an excellent time to trim and re-allocate to more established, high-quality international companies. The holdings are also all in developed nations, which should benefit, as I think the U.S. dollar depreciates this year. You may get a double win there – as the companies start to improve with their stock prices, currency exposure to other nations should help smooth your returns. Also, a juicy dividend yield of over 5% will allow you to get paid to wait. If you are trying to add to your income mandate, IDV certainly fits the bill and will gain you some international diversification.

The sector breakdown is also attractive at this point in the bull market. It has a healthy exposure to financials at 38.7%, which I think are set to have a great year. I believe that Treasury yields should increase this year, as the Fed is done cutting rates and global growth should recover with trade tensions around the world decreasing. And although Brexit will be a robust negotiation process, the fact that they are moving along in the process should provide more clarity for businesses going forward. The ETF is also a cheap way to get exposure, with an MER (management expense ratio) of only 0.49%. While it is slightly higher than some more passive ETFs, gaining international exposure can be more expensive, and I am comfortable with paying less than half of a percent to get the exposure I want.

Another reason why I think IDV is set for a big year is the years of underperformance versus the iShares Core S&P 500 ETF (IVV). Taking a look at the three- and five-year total return charts of the two investments, it’s easy to call the clear winner. With yields at rock-bottom levels and set to rise, the U.S. dollar set to depreciate with the Federal Reserve set in a dovish tilt and the Trump Administration pushing around the global players, this could be the year when there is finally some convergence to the mean. If it was a little bit of an outperformance, you could brush it off, but the massive ~53% outperformance in five years leads me to bet on the underdog.

And finally, from a technical analysis perspective, it looks like a decent time to start building a position here. While the holding has undercut its 50-day moving average and could trace back down to the 200-day, there is a lot of strong support near that level. Also, we could get a bounce back and break out in the next few weeks if things go well, and if this holding can break that long-term resistance around $34-35, there is a lot of upside to be had. I don’t think you should sell all your U.S. exposure here and add to IDV, however. My bull theory comes with a diversification purpose, as it would be a great time to take some of your profits off the table and invest in some more value-style plays like this one. ­­­­

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