Equity: Developed Markets Ex-U.S. - High Dividend Yield
Investors in this segment have three ETF choices with similar fees—but the funds differ considerably in their exposure and tradability.
While IDV is far larger and far more liquid
“IDV is far larger and far more liquid than competitors” than competitors, the fund differs greatly from our benchmark. It overweights Australian stocks at the expense of those from the UK and leans hard on utilities and industrial stocks. IDV also favors smaller firms. All of these biases are relative to our market-cap weighted benchmark, which reasonable people might object to given that it’s not dividend weighted. This factor as well as the fund’s massive liquidity help it earn Analyst Pick despite its lower Fit score.
DTH’s exposure Fits our benchmark better, though it too is dividend weighted. It avoids the most egregious biases of IDV along country, sector and size lines, although it does omit Canadian stocks by rule. The fund is entirely viable with respect to its coverage and total cost of ownership, but it’s no match for IDV in trading volume.
Recent launch HDEF holds a very similar basket as our benchmark—it only omits Canadian stocks that our benchmark includes. However, the fund hedges out foreign currency movements, which could substantially alter its performance versus the benchmark. HDEF has yet to attract assets and will be difficult to trade until it does.
To compare yields between the funds, use the latest net distribution yields on each fund’s overview tab as well as the gross portfolio yields on the Fit tab. For more choices, also see the Global Ex-U.S. - High Dividend Yield segment whose funds allow emerging markets exposure. (Insight updated 04/28/17)
ETF.com Efficiency Insight
Both established funds have large asset bases, charge similar fees and track their indexes well. IDV has been significantly cheaper to hold thanks to solid portfolio management and
“IDV has been significantly cheaper to hold” securities lending income, despite charging a higher headline fee than competitor DTH.
HDEF is the cheapest fund in the segment, but for now it's still building an asset base and tracking history. (Insight updated 04/28/17)
ETF.com Tradability Insight
IDV is by far the most liquid ETF in its segment, with plenty of volume for all comers. Its average quoted bid/ask spread is quite narrow, particularly next to DTH's wide spreads. DTH
“IDV is by far the most liquid ETF ” is hardly illiquid but not a trader’s tool either. Meanwhile, recent launch HDEF has yet to establish a trading market. Use careful limit orders and be prepared to wait for execution.
All three funds trade well in size. DTH and HDEF have large-cap-heavy portfolios which translate to stronger underlying liquidity as we measure it, but IDV's basket isn't illiquid either. HDEF loses a point in block liquidity, as its poor retail liquidity means that market makers will have a hard time unwinding their hedges. Larger investors should consider working with liquidity providers or the issuer’s capital markets desk. (Insight updated 04/28/17)
ETF.com Fit Insight
The three funds in this segment follow very different strategies, so don't assume they're interchangeable. IDV and DTH use dividend-weighting, a strategy that ensures companies
“there's no objectively correct way seek high-yielding stocks” that distribute higher dividends have more weight in the portfolio—a logical choice in the high-dividend space. HDEF is cap-weighted, like our chosen benchmark. However, there's no objectively correct way seek high-yielding stocks, so our take on the market won't necessarily match yours.
IDV selects the 100 highest-dividend-yielding non-US stocks in developed markets. Fund constituents must pass other screens, such as 3 years of positive dividend growth, to avoid yield traps. IDV's enhanced exposure to utilities and industrials is primarily fueled by its near-total omission of health care and a sizeable underweight in financials (it avoids holding REITs by rule). By region, IDV favors Australia at the expense of the UK and Canada. IDV also tilts considerably smaller than our benchmark, with a heavy dose of mid- and small-cap stocks.
DTH differs materially from IDV, and generally Fits our benchmark better but not well. DTH selects securities from the WisdomTree DEFA Index, tracking the top 30% of securities by dividend yield. The fund avoids massive country bets although it omits Canadian stocks altogether.
HDEF pulls its holdings from the popular MSCI EAFE index, applying the same yield-seeking methodology as our MSCI benchmark. In fact, HDEF's index differs from our benchmark in only two respects: it excludes Canadian equity, and hedges out currency movements for US dollar investors. That means it should Fit reasonably well.
As always, when comparing yield between funds in this segment, don't forget to take into account total return. (Insight updated 04/28/17)