Why Investors See Value in International Dividend ETFs

As investors seek international diversification, dividend ETFs are also getting a look.

International markets are outperforming U.S. markets in the first quarter of 2025, exemplified by the $84 billion Vanguard Total International Stock ETF's (VXUS) 8% gain, which follows the FTSE Global All Cap ex US index. 

Value-style plays have done particularly well, such as the 14% rise in the $20 billion iShares MSCI EAFE Value ETF (EFV), not surprising since international has underperformed U.S. markets for a good decade.

Navigating the Current Market

In the current volatility amid policy uncertainty, dividend-focused exchange-traded funds can act as a buffer by offering both a steady income stream and a hedge against volatility, said Dina Ting, head of global index portfolio management at Franklin Templeton. Many international companies have been good dividend-payers.

“They tend to be more of these value, income-type of companies,” she said.

Flows into Franklin Templeton’s international dividend ETFs suggest that financial advisors and other investors see the value. Its biggest and oldest funds are the $2.2 billion Franklin International Low Volatility High Dividend Index ETF (LVHI) and the $1.3 billion Franklin International Core Dividend Tilt Index ETF (DIVI) have seen nearly $900 million in combined flows year to date. 

The dividend strategies focused on total return and not just capturing the highest yield can be more predictable and can act as core holdings, she said.

DIVI is up 11.8% year-to-date and has a 63% exposure to Europe and 37% exposure to the Asia-Pacific region, while LVHI is up 8% and has a 60% weight to Europe, 24% to Asia-Pacific and 15% to North America.

In all, Franklin Templeton has seven dividend-focused ETFs, both U.S. and international, including five that launched recently. In all, the firm has $4.2 billion in AUM in the strategies. 

Franklin Templeton's Dividend Strategy

Franklin Templeton’s strategies are dividend tilts to their benchmark indexes and use optimization to the trailing 12-month dividend yields of the eligible securities it includes, adding constraints such as sector. The aim is to boost the dividend yield but still closely track the benchmark index. Ting said it uses several characteristics to choose companies, not just which company has the highest yield. 

“The appeal of the strategy comes from multiple prongs. One is mitigating market drawdowns. Second is still participating in the upside potential, all while providing enhanced dividend yields in comparison,” she said. 

These are new strategies that are more than pure dividend plays but also include growth company names to “help on the total return performance. This helps to balance the risk and return perspective,” she added.