Investors should note any time a money manager has more than 7 trillion dollars In assets do something new. That includes Vanguard’s move into international dividend-paying equities.
Friday, the investment fund company a statement An International Dividend Growth Fund that will hold shares of international companies that Vanguard directors believe will continually increase their dividend.
“Vanguard creates products designed to meet the long-term needs of investors and helps give them the best chance for investment success,” Dan Reyes, global head of portfolio review at Vanguard, said in a press release. “Partnering with world-class investment talent is an integral part of Vanguard’s disciplined, research-driven process to develop a portfolio of products that are always investment-worthy.”
The fund will be managed by a team from Wellington Management Company, who manage
Vanguard Dividend Growth Fund
(Stock ticker: VDIGX).
It’s not clear why Vanguard is offering the fund now. The dividend has been a little unfavorable lately. Vanguard Dividend Growth Fund is up about 1% year-to-date, instead
Standard & Poor’s 500
added 14%. Both of these numbers exclude dividends.
Global stocks haven’t done all that well either. the
Vanguard Total International Stock ETF
(VXUS) is up about 4% so far this year.
Investors are more interested in US growth stocks such as
Up about 27% year-to-date, supported by Nvidia shares that have gained nearly 200%.
This means that Vanguard offers investors an opportunity to recognize when others are getting upset.
Ratings add to the appeal. Shares in the international equity ETF are trading at less than 13 times the earnings analysts expect for the next 12 months. That’s a small discount to the five-year average and much less than the 26x for the
The discount for international equities on the Nasdaq is also slightly larger than it has been historically.
The US dollar is another positive factor. It is much stronger than it was a few years ago. The US Dollar Index (DXY), which tracks the greenback against a basket of other currencies, is at around 103, up from around 91 before the Federal Reserve started raising interest rates in March 2022.
Higher rates, or rates that rise faster, in one country versus another can also be a cause for currency values to change. Investors have to hold the local currency to buy the higher rate assets. As the Fed’s rate-raising cycle draws to a close, foreign currencies could get stronger, making dividend payments made in foreign currencies more valuable.
Vanguard said it does not take such factors into account when launching products. “Vanguard’s approach to product development is centered on offering funds that provide a long-term and lasting investment advantage throughout market cycles,” a Vanguard spokesperson said in product development via email. “We don’t waste product launches around relative market valuations. We believe low-cost, active strategies that rely on a repeatable and durable investment process are best suited to adding value by giving investors the opportunity to outperform the markets.
Avoiding market timing is sound advice. It is always good to diversify. That can mean diversification across countries, asset classes, and even in terms of growth versus dividend-paying stocks. Growth stocks are great right now, but investors shouldn’t forget that dividends account for roughly 40% of total stock returns over the long term.
Write to Al Root at firstname.lastname@example.org
(tags to translation) Trust funds / funds / financial instruments