- The International Large Cap Value asset class has been a good place to invest for long-term investors wishing to invest beyond the U.S.
- There are currently 38 ETFs available in the Morningstar Foreign Large Value category
- Twelve of these Foreign Large Value funds have been available for 10 years or longer
The International Large Cap Value asset class has been around much longer than ETFs have been available. This asset class is typically underutilized in most American’s equity portfolios. That is unfortunate because International Large Cap Value stocks tend to garner a long-term risk premium over growth stocks, just as U.S. Large Cap Value stocks do. This asset class has done poorly vs a typical S&P 500 fund since it’s availability as an ETF, but when looking back further than 2002, this asset class has produced superior returns over very long periods. Index Fund Advisors is an excellent website to get a long-term view of the performance of many asset classes.
Source: Index Fund Advisors (IFA)
In the chart above, I have highlighted the long-term performance of IFA International Value (International Large Cap Value) and IFA U.S. Large Company (S&P 500). Notably, the S&P 500 has outperformed during the last 5 and 10-year periods. But, over much longer periods, International Large Cap Value has outperformed. This long-term performance was enough for me to make the decision to allocate some of our equity holdings to the International Large Cap Value asset class. If you are considering investing in this asset class, continue reading and I will show how the 12 oldest ETFs in this category have performed.
Morningstar currently shows 38 ETFs available in the Foreign Large Value Category. Twelve of these funds have been available for 10 years or longer. I have compared each of these funds head-to-head using the back-testing tools at Portfolio Visualizer and Koyfin. The rankings below are based solely on long-term performance. I did not consider such things as liquidity, tax efficiency, quality or valuations. Please perform your due diligence on these matters.
Source: Morningstar, 2-3-2019
The four best long-term performance ETFs were FGD, IDV, DWM and PID. The following charts display how these 4 ETFs have performed head-to-head over the last 11+ years.
FGD vs IDV vs DWM vs PID: December 2007 – January 2019
Source: Portfolio Visualizer
FGD vs IDV vs DWM vs PID: November 27, 2007 – February 3, 2019
Source: Koyfin
Now that we’ve looked at the performance of these top 4 ETFs, let’s look at their stated objectives to get a better idea of how they are managed.
FGD – First Trust Dow Jones Global Select Dividend Index Fund is an exchange-traded fund. The investment objective of the Fund is to seek investment results that correspond generally to the price and yield, before fees and expenses, of an equity index called the Dow Jones Global Select Dividend Index. The Index universe is defined as all component companies of the 25 developed-market country indexes in the Dow Jones Global Indexes (DJGI) family. To be considered for the Index, companies in the Index universe must pass eligibility screens for dividend quality and liquidity. The company must: Pay a current dividend. Have a current-year dividend-per-share ratio that is greater than or equal to its five-year average annual dividend-per-share ratio. Have a five-year average payout ratio of less than or equal to 60% for U.S. and European companies; or less than or equal to 80% for all other countries. Have a minimum three-month daily average trading volume of $3 million. Stocks meeting all eligibility requirements are ranked by dividend yield. The top 100 highest-yielding stocks are selected for inclusion in the Index, subject to buffers designed to limit turnover by favoring current Index components: Stocks in the Index universe are ranked in descending order by indicated annual dividend yield, defined as a stock’s unadjusted indicated annual dividend (not including any special dividends) divided by its unadjusted price. All current Index component stocks that are among the top 150 stocks are included in the Index. Noncomponent stocks are added to the Index based on their rankings until the component count reaches 100. Component weightings are assigned based on dividend yield. Weights of individual component stocks are capped at 10%. The Index is reconstituted and adjusted annually in March. (BEST LONG-TERM PERFORMANCE, LOWEST U.S. MARKET CORRELATION)
IDV – The iShares International Select Dividend ETF seeks to track the investment results of an index composed of relatively high dividend paying equities in non-U.S. developed markets. Exposure to established, high-quality international companies. Access to developed market stocks that have provided consistently high dividend yields over time. Use to expand income strategies to international markets. (LARGEST AUM, HIGHEST DIVIDEND, BEST SINGLE-YEAR PERFORMANCE)
DWM – WisdomTree International Equity Fund** seeks to track the investment results of dividend-paying companies in the developed world ex the U.S. and Canada. Gain exposure to developed international world, ex-U.S. and Canada all cap equity from dividend paying companies. Use to complement or replace international developed all cap broad based active and passive strategies. Use to satisfy demand for growth potential and income focus. (LOWEST EXPENSE RATIO, LOWEST P/B RATIO, MOST DIVERSIFIED, LOWEST TURNOVER, LOWEST VOLATILITY)
PID – The Invesco International Dividend Achievers™ ETF (Fund) is based on the NASDAQ International Dividend Achievers™ Index (Index). The Fund will normally invest at least 90% of its total assets in dividend-paying common stocks and other securities that comprise the Index. The Index is designed to identify an international group of American Depository Receipts, Global Depositary Receipts and non-U.S. common or ordinary stocks that have qualified as International Dividend Achievers™. These companies have increased their aggregate annual regular cash dividend payments consistently for at least each of the last five consecutive years. The Index is computed using the net return, which withholds applicable taxes for non-resident investors. The Fund and the Index are reconstituted annually in March and rebalanced quarterly in March, June, September and December. (LOWEST P/E RATIO)
For investors seeking to invest outside the U.S., the International Large Cap Value asset class is a good choice. This asset class may or may not enhance portfolio returns, but it will certainly increase diversification. There are many ETFs to pick from in this category, but only 12 have been available for 10 years or longer. The top 4 performing International Large Cap Value funds are worthy of consideration for long-term investors’ equity portfolios.
Thank you for taking time to read this article. If you found it useful, please share it with a friend.
Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator
Disclosure: We own shares of FGD, and we intend to buy more shares in the future. I am not a professional investment advisor. Please perform your own due diligence or seek assistance from a Registered Investment Advisor prior to investing in any fund mentioned in this article.
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