As yields continue to rise on benchmark government debt, many investors are starting to panic about the income producing securities in their portfolios, according to Zacks.
These investments have been crushed over the past month or so, leading many to abandon high income picks altogether.
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, says Eric Dutram of Zacks.
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.
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 US.
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:
The Vanguard FTSE Europe ETF is one of the most popular European ETFs on the market, with assets of nearly USD8bn. 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 per cent), health care (12 per cent), and industrials (12 per cent). British stocks take the biggest holding, followed by Swiss companies, then a variety of euro zone nations.
The product has added about 3.1 per cent over the past month, compared to a 2.4 per cent 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 five per cent, making it a very solid income destination.
The iShares International Select Dividend ETF provides a broader international dividend play. 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 sizeable allocations as well. This product also offers a solid allocation to mid and small cap securities (nearly 30 per cent of the portfolio), while its sector focus centres on financials, energy, utilities, and industrials.
IDV has also had a solid past month, gaining about 4.1 per cent in the time frame. Plus this ETF is also sporting a 12 month yield around the 5.0 per cent level, while its 30-Day SEC Yield comes in at 4.9 per cent.
For a small cap look at the solid trends appearing in Europe, the WisdomTree Europe SmallCap Dividend ETF, could be a good 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 per cent), followed by consumer discretionary (15 per cent) and technology (14 per cent). 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 per cent in the time frame. Its yield leaves a little to be desired at 3.4 per cent, though it is still definitely an income destination for most investors at this time.
Talk of the taper in the US market has crushed a number of yield-focused securities lately. Many products in this space have seen losses exceeding 10 per cent 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.
