This year will go down as another disappointing one for international equities. Well, let’s put “disappointing” into context. As of Dec. 8, the MSCI ACWI ex USA Index was higher by 10.5% year-to-date, or less than half the 21.7% returned by the S&P 500 over the same period.
So 2023 will be yet another year in which international stocks and the related index funds weren’t worth the hassle for advisors and clients. This is now a long-running theme and one that weighs on advisors’ efforts to bring much needed diversification to client portfolios that are likely significantly overweight domestic stocks.
One point of interest is that international stocks in broad index form aren’t significantly more volatile than comparable domestic equity gauges. This year, the MSCI ACWI ex USA Index has barely been more volatile than the S&P 500.
Still, there’s a perception among clients that venturing outside the U.S. means taking on increased turbulence. There are ways to damp such risk. For advisors looking to temper some of the risk associated with ex-US stocks, focusing on quality has merit. That includes embracing dividends. On that note, the Schwab International Dividend Equity ETF (NYSEARCA: SCHY) could be worth considering in 2024.
SCHY Cheap ETF with Inexpensive Stocks
Across its ETF lineup, Schwab is synonymous with low fees and that’s true of SCHY, which charges just 0.14% per year, or $14 on a $10,000 stake. That’s fairly low among passive international dividend exchange traded funds.
Equally as important as that favorable fee are the points that SCHY is home to profitable companies that offer the dividend consistency advisors and clients crave.
“The resulting portfolio favors stable companies that are likely to maintain their dividend payments. On average, its profitability has been consistently higher than the MSCI ACWI ex USA Value Index, and it has tended to incur less of the market’s risk,” notes Morningstar analyst Daniel Sotiroff. “Despite looking for stocks with higher dividend yields, it does not provide a higher yield than the value side of the market. As of October 2023, its trailing 12-month dividend yield stood at roughly 3.9%, placing it on par with its Morningstar Category index. That said, yield does not play a big role in the portfolio’s overall ability to deliver strong risk-adjusted performance relative to the MSCI ACWI ex USA Value Index.”
Sotiroff adds SCHY has a penchant for leaning into companies from stable sectors and that’s led to a tangible reduction in volatility. For the two years ending Dec. 8, not only did SCHY outperform the MSCI ACWI ex USA Index, it did so with 320 basis points less in annualized volatility.
SCHY Not Old, But Has Bright Future
In ETF terms, SCHY isn’t old. It turns three years old in April, but advisors shouldn’t let the ETF’s relative youth be a detriment.
To this point, SCHY’s track record has been impressive and its future could be even brighter as ex-US dividends continue rising and if the stocks themselves finally show signs of life against domestic counterparts.
“So far, the fund has delivered on expectations. It has been less volatile than the MSCI ACWI ex USA Value Index, and it has edged that benchmark since Schwab launched it in April 2021. Its low fee should be a big advantage over its more expensive Morningstar Category peers,” concludes Sotiroff.