Many investors are surprised to learn that a large percentage of the stock market gains over the past several decades is due to dividends.
While the United States is a hotbed of stocks offering substantial dividend yield, international stocks can provide similar results. Although I would never suggest a portfolio made up of strictly of non-U.S. exchange-traded funds (ETFs), exposure to the international market makes good sense for diversification purposes.
These under-the-radar ETFs have strong potential for growth as well as produce a respectable dividend yield while allowing for geographic diversification.
DB X-trackers MSCI EAFE Hedged Equity Fund (NYSE: DBEF)
Hedged currency ETFs have earned a place in the spotlight this year. While the Federal Reserve has shown its appetite for aggressive easing measures, countries like Australia, New Zealand and a few emerging markets refuse to play along. This difference in strategy results in currency volatility.
Without going into unnecessary detail, suffice it to say that this volatility has created a demand for hedged currency ETFs. My favorite is the tiny DB X-trackers MSCI EAFE Hedged Equity Fund. With an average daily volume of about 12,000 shares, its relatively small size has kept it under the radar of many investors. However, a yield near 6% and an increase of 14% in the past 90 days may attract some attention.
The ETF comprises 560 stocks from across Asia and Europe. This wide geographic diversification allows the ETF to hedge moves in the U.S. dollar and non-dollar currencies.
Taking a look at the technical picture, the price has pulled back from a high in the mid $26 range but remains above the 50-day simple moving average. Buying now, in the technical value buy zone, with stops right below the 50-day simple moving average at $25 makes sense.
WisdomTree Middle East Dividend ETF (Nasdaq: GULF)
For an ETF focused on the Middle East, this has an appropriate ticker (think Persian Gulf). Middle Eastern economies have been thriving lately, with Dubai's stock market up nearly 14%, Abu Dhabi's soaring almost 15% and Saudi Arabia's up by 6.2%. Economic growth is forecast to hit nearly 4% this year, compared with an expected 2% increase in the United States.
This tiny ETF of just under $18 million in assets yields close to 5%, but its small size keeps it from being noticed by dividend investors. The ETF has just over 37% of its assets in the United Arab Emirates and another 27% in Qatar. (You can see how Dubai's market has carried the performance this year.) The ETF represents a stable of 48 stocks, including Dubai's Islamic Bank, through a dividend-weighted index.
What I like most about the future potential of this ETF is that the MSCI annual reclassification of markets will be in the next several weeks. If the U.A.E. and/or Qatar are upgraded to emerging market status, GULF could well soar higher on the news. In the technical picture, I would enter this ETF on a daily breakout close above the line at the chart's high.
iShares S&P Developed ex-US Property Index Fund (NYSE: WPS)
Subscribers to Carla Pasternak's High-Yield Investing newsletter are already well aware of the tremendous yields available in U.S. real estate investment trusts (REITs) and master limited partnerships (MLPs). This success is not just limited to the United States, and this ETF provides investors a chance to profit from real estate markets outside the U.S.
About 50% of this ETF is allocated to international REITs; the other half is dedicated to property developers. Hong Kong and Australia account for 31% of the holdings, with Japan at 29%. The rest is distributed among other developed nations. The ETF boasts a 12-month trailing yield of nearly 5%, providing investors solid yield as well as geographic diversification within the real estate sector.
Technically, price has fallen sharply off of the recent highs of above $41. The 200-day simple moving average may provide support in the $36 range. If you believe that the global real estate market will continue its rebound, buying now in the value zone makes solid sense. However, if the 200-day simple moving average is broken on the downside, all bullish bets are off.
Risks to Consider: Although each of these ETFs provides diversification outside of the United States, there is corresponding risk. The relatively small size of these ETFs means there may be excessive volatility as large investors buy or sell. In addition, emerging markets have substantial political risk. Always use stops and position size properly when investing.
Action to Take --> Each of these ETFs provides non-U.S.-based dividend yield, but they all come with corresponding risk levels. Entering at the technical levels indicated makes sense, but be certain to have tight stops as provided since there is substantial downside risk.