DIVI: A Rare International ETF That Successfully Diversifies Through Developed Markets

The article discusses the Franklin International Core Dividend Tilt Index ETF (DIVI), a rare international ETF that focuses on developed markets outside the US. The author praises DIVI for its diversified portfolio and ability to generate income. The ETF's focus on dividend-paying stocks in developed markets outside the US sets it apart from other international ETFs. The author concludes that DIVI is a solid choice for investors seeking international diversification.

The Franklin International Core Dividend Tilt Index ETF (DIVI), listed on the NYSE ARCA, is a standout international ETF that focuses on developed markets outside the United States. This ETF aims to deliver a higher dividend yield than its parent index, the Morningstar® Developed Markets ex-North America Target Market Exposure Index, while maintaining low expected tracking error [1].

DIVI's Methodology and Portfolio Characteristics

DIVI's methodology sets it apart from other international ETFs. Unlike many dividend-themed ETFs that focus solely on yield, DIVI uses an optimization process that emphasizes value characteristics such as earnings stability and profitability. This approach allows the ETF to include non-dividend-paying stocks in its universe, resulting in a more balanced portfolio [2].

Geographically, DIVI is overweight in Japan and the UK, with the rest of the portfolio spread across Europe and Australia. Notably, Canada is not included in the portfolio, which might limit diversification but could help augment total returns [2]. Sector-wise, DIVI is significantly overweight in tech stocks, a notable difference from other international ETFs like VIGI, IDV, and SCHY. This sectoral tilt is typical of a value and dividend-focused ETF, with a significant concentration in financials and industrials [2].

Performance and Risk Management

Over the past five years, DIVI has outperformed its peers in terms of total returns and drawdown management. Despite a smaller drawdown during the 2022 downturn, DIVI's performance has been consistently strong, driven by its superior methodology and risk management [2]. The ETF's dividend yield, at around 3.2%, is not significantly lower than its peers, and its long-term focus on dividend stability and overall business stability has led to long-term outperformance within the value theme [2].

Conclusion

The Franklin International Core Dividend Tilt Index ETF (DIVI) is a solid choice for investors seeking international diversification. Its unique methodology, balanced portfolio, and strong performance make it a standout in the international ETF landscape. While the global macro backdrop may not be fully supportive of international dividends, DIVI's case is one of the best in this category. Investors should consider DIVI as a core international dividend holding, especially those who can tolerate its marginally lower yield in exchange for a better risk-adjusted return profile [2].

References

[1] https://finance.yahoo.com/quote/DIVI/holdings/
[2] https://seekingalpha.com/article/4804732-divi-the-rare-international-etf-that-gets-it-right