Under The Hood: An ETF For International Income
The FlexShares International Quality Dividend Dynamic Index Fund (NYSE: IQDY) is part of that trio and represents the one of the three new ETFs that seeks a beta that is higher than its underlying index, in this case the Northern Trust International Large Cap Index.
As is the case with its newly minted brethren, the FlexShares International Quality Dividend Index Fund (NYSE: IQDF) and the FlexShares International Quality Dividend Defensive Index Fund (NYSE: IQDE), IQDY eschews the typical cap-weighting methodology that is prevalent with so many ETFs. The new ETFs also pass on using length of dividend increase streaks as a primary screening tool.
Rather, IQDY uses “an optimization process designed to: maximize this factor, target a beta higher than the Parent
Index and improve on the Parent Index’s dividend yield, according to FlexShares.
With an expense ratio of 0.47 percent per year, IQDY holds 220 stocks and joins its new peers in being heavily focused on the U.K. and Japan. Those two countries combine for 32.7 percent of IQDY’s weight. Australia, Germany and China round out the top five country allocations.
IQDY also shares something in common with its new FlexShares peers at the sector, that being a sizable allocation to financial services stocks. That sector accounts for 27.7 percent of the fund’s weight. Perhaps in efforts to generate beta in excess of its underlying index, IQDY’s also features double-digit allocations to industrial, energy and materials names.
On the other hand, the new ETF is relatively light on so-called dividend sectors. Consumer staples, health care, telecommunications and utilities combine for less than a quarter of IQDY’s sector weight.
IQDY’s top-10 holdings include Commonwealth Bank of Australia, AstraZeneca (NYSE: AZN), Eni (NYSE: E), Royal Dutch Shell (NYSE: RDS-A) and Suncor (NYSE: SU). Yield information on IQDY is not yet available, but the average yield on AstraZeneca, Royal Dutch Shell, Suncro and Eni is 4.7 percent, indicating IQDY could be home to at, the very least, a decent yield. Additionally, the iShares Dow Jones International Select Dividend Index Fund (NYSE: IDV), an ETF IQDY could be a potential rival, has a trailing 12-month dividend yield of 4.85 percent.
Investors looking for a domestic equivalent of IQDY should look at the FlexShares Quality Dividend Dynamic Index Fund (NYSE: QDYN). That ETF, along with two other domestically-focused FlexShares dividend funds, debuted in December.
While QDYN is not yet large in terms of assets, it uses a similar screening methodology to what is seen with IQDY and that could mean good fortune for investors, particularly if European stocks turn around. QDYN has gained almost 11 percent since inception and has a weighted average dividend yield of 3.43 percent.
As is usually the case with ETFs that are just a few days old, there is obviously not much of a track record with which to form an opinion on IQDY. The ETF’s Europe exposure implies some level of risk, but if Japanese stocks continue soaring and Australian stocks hold steady, investors will be buffered somewhat from Europe-related shocks with this new fund. For the slightly adventurous dividend investor, IQDY is worth keeping an eye on over the medium-term.
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