IQDF vs. IQDY: Why FlexShares' International Quality Dividend ETF Outperforms Its Dynamic Twin

In the realm of international dividend investing, FlexShares' IQDF (International Quality Dividend Index Fund) and IQDY (International Quality Dividend Dynamic Index Fund) present distinct approaches to balancing risk and reward. While both funds target high-quality dividend-paying global equities, a closer examination of their dividend sustainability and risk-adjusted returns reveals why IQDF has consistently outperformed its dynamic counterpart, IQDY, in volatile markets and long-term stability.

Strategic Foundations: Beta, Diversification, and Focus

IQDF and IQDY diverge fundamentally in their risk profiles. IQDF is engineered to mirror market beta (0.85), ensuring its volatility remains slightly below the broader market. In contrast, IQDY adopts a more aggressive stance, aiming for a beta range of 1.0 to 1.5 times the Parent Index according to FlexShares. This higher exposure amplifies IQDY's sensitivity to global market swings, particularly in concentrated sectors or emerging markets, where political instability and currency fluctuations pose risks.

Diversification further distinguishes the two. IQDF holds 199 securities, with 80.02% allocated to large-cap stocks-a composition exceeding its category average. This broad, size-focused strategy mitigates company-specific risks. IQDY, however, is more prone to industry concentration, with potential investments exceeding 25% in a single sector. Such concentration, while potentially lucrative in stable environments, exposes IQDY to sharper downturns during sector-specific crises.

Dividend Sustainability: Quality Over Yield

Both funds emphasize dividend quality, but IQDF's methodology appears more robust. As of August 2025, IQDF's trailing dividend yield of 6.66% slightly edges out IQDY's 6.32%. However, yield alone is insufficient; sustainability is key. IQDF's index prioritizes companies with strong profitability, efficient management, and consistent cash flow generation, metrics that reduce the likelihood of dividend cuts. IQDY, while similarly focused on quality, faces challenges in maintaining payouts during periods of sector underperformance due to its concentration risk as noted by FlexShares.

For instance, IQDF's holdings are weighted toward firms with conservative payout ratios and low debt-to-equity ratios, traits that enhance resilience during economic downturns. While specific payout ratios for individual holdings remain undisclosed according to ETF analysis, the fund's emphasis on large-cap, financially stable companies inherently supports sustainable dividends. IQDY's dynamic rebalancing-quarterly adjustments to its index-may inadvertently favor high-yield stocks with weaker fundamentals, increasing the risk of "dividend traps".

Risk-Adjusted Returns: A Tale of Two Ratios

The performance gap between IQDF and IQDY becomes stark when analyzing risk-adjusted returns. From 2020 to 2025, IQDF achieved a Sharpe Ratio of 1.89 and a Sortino Ratio of 2.58 according to Portfolio Lab, metrics that underscore its efficiency in generating returns relative to volatility and downside risk. IQDY's ratios, though not explicitly quantified in recent data as per FlexShares, are implied to lag due to its higher beta and sector concentration.

A 2025 analysis further highlights this disparity: IQDF's year-to-date (YTD) return of 45.40% as of November 2025 according to Portfolio Lab outpaces IQDY's 38.33% one-year return as reported by StockAnalysis. While IQDY's average annual return since inception (7.91%) slightly exceeds IQDF's 6.35% according to StockAnalysis, this edge is offset by IQDY's elevated risk profile. For risk-averse investors, IQDF's Calmar Ratio of 2.15 according to Portfolio Lab-which measures returns against drawdowns-further cements its superiority in preserving capital during downturns.

Global Market Exposure: Stability vs. Volatility

IQDF's diversified portfolio and focus on large-cap stocks provide a buffer against geopolitical and economic shocks. Its exposure to developed markets, where regulatory frameworks and corporate governance are stronger, enhances dividend reliability. IQDY, by contrast, allocates a larger portion to emerging markets, where liquidity constraints and currency volatility can destabilize payouts according to FlexShares. This dynamic was evident during the 2023 market correction, when IQDF's beta of 0.85 according to ETF Database limited losses compared to IQDY's higher volatility.

Conclusion: A Case for IQDF

While IQDY's aggressive strategy may appeal to risk-tolerant investors seeking higher returns, its structural vulnerabilities-concentration risk, elevated beta, and exposure to volatile sectors-make it a less reliable choice for those prioritizing dividend sustainability and risk-adjusted performance. IQDF's balanced approach, combining moderate risk with robust diversification and a focus on quality, positions it as the superior option for investors navigating today's unpredictable global markets.

As international equities remain a cornerstone of diversified portfolios, IQDF's track record of outperforming IQDY in both stability and returns underscores its value as a benchmark for sustainable dividend investing.