3 Great International ETFs Having a Tough Year

July 28, 2022 GeneAka Investment Comments Off

2022 has been a tough year for stocks in general and international stocks in particular. So, the three international stock ETFs on tap for today all focus on high-quality companies. We think all three are great long-term investments that should provide a smoother ride than the broader foreign stock market.

The first ETF on my list is Silver-rated Vanguard International Dividend Appreciation ETF, ticker (VIGI). It looks for foreign stocks that have consistently grown their regular cash dividend payments for seven years or more, and it forgoes those that are most likely to cut dividend payments in the near future.

Seven years of consistent dividend growth is a really strict hurdle that pulls VIGI toward well-managed shareholder-friendly companies. It skews toward names trading at higher multiples and lower dividend yields. This ETF tends to hold highly profitable stocks that not only have the capacity to make dividend payments but also a willingness to do so.

3 Great International ETFs Having a Tough Year

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This trio of ETFs earn a Morningstar Analyst Rating of Silver.

Vanguard International Dividend AppreciationETF (VIGI)
iShares MSCI International Quality Factor ETF (IQLT)
SPDR MSCI EAFE StrategicFactors ETF (QEFA)

Focusing on dividend growth causes this portfolio to focus on stocks from stable sectors, such as healthcare and consumer staples, than its category index, the MSCI ACWI Ex USA Growth Index, with proportionally smaller stakes in the information technology sector. While we like VIGI’s long-term potential, it had shed 19.2% for 2022 through June 15.

My second ETF takes a more direct route to high-quality stocks. Silver-rated IShares International Quality Factor ETF, with the ticker (IQLT), looks for stocks with a strong combination of profitability, low debt, and consistent earnings growth. It tweaks the weights of these stocks to emphasize names with the strongest combination of these characteristics, while honoring some additional constraints to prevent sector biases from creeping into its portfolio.

This particular strategy does not consider a given stock’s valuation. So, its average price multiples tend to skew higher than the MSCI ACWI Ex USA Index. But that doesn’t necessarily mean its holdings are priced above their true underlying value. Like VIGI, many of IQLT’s holdings have strong competitive advantages that may justify higher multiples, while helping them perform well in the future. Its portfolio has tended to hold more stocks with wide economic moat ratings than the MSCI ACWI Ex USA Index. Despite those attractive characteristics, IQLT was still down 19.7% for the year through June 15.

My third and final ETF is a bit of a sleeper. SPDR MSCI EAFE Strategic Factors ETF has a Morningstar Analyst Rating of Silver and trades under the ticker (QEFA). It’s a multifactor strategy that splits its portfolio evenly across the value, low-volatility, and quality factors. But the quality and low-volatility factors aren’t completely independent of each other. Both tend to favor many of the same stocks held by VIGI and IQLT, so the overall portfolio tends to lean toward the same names.

Rather than going all-in on these types of companies like VIGI and IQLT, QEFA’s value-oriented sleeve provides some balance. It should be a benefit when cheaper stocks outperform their more expensive counterparts, as they have over the first few months of this year. While QEFA is down about 18.4% for the year, that value sleeve has provided a little bit of an advantage over VIGI and IQLT.

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