International Dividend Funds

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Visitor
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International Dividend Funds

Post by Visitor »

Has anyone chosen to invest in the Vanguard International Dividend Appreciation Index Fund or Vanguard International High Dividend Yield Index Fund?

Could these funds help lower risk in bear markets because of the dividend component? Would you consider adding these funds as a compliment the Vanguard Total International Stock Index Fund?

I own the S&P 500 as a core fund and I'm considering buying the Dividend Appreciation Index Fund as a compliment holding (for the same reason above) to lower risk in domestic holdings.

Is anyone doing this? Or am I overthinking things?

Appreciate your thoughts.
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Visitor
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Re: International Dividend Funds

Post by Visitor »

Sorry I should have added, all of these holdings are in Roth IRA accounts.

Thanks!
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nisiprius
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Re: International Dividend Funds

Post by nisiprius »

Visitor wrote:...Could these funds help lower risk in bear markets because of the dividend component?...
Did they "help lower risk" in the last bear market in domestic stocks?

Blue, Vanguard High Dividend Yield Index Fund, VHDYX. 54% drop.
Orange, Vanguard Total Stock Market Index Fund, VTSMX. 52% drop.

Where do you see the "lower risk?" I promise not to claim that Total Stock had "lower risk" if you'll promise not to claim that High Dividend Yield had "lower risk." Let's agree to say they behaved "just about the same."

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lack_ey
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Re: International Dividend Funds

Post by lack_ey »

High dividend yield and dividends in general do not really lower risk in bear markets or otherwise. Tilting to a certain style of stock in general means concentrating in those and giving up diversification, which does the opposite of lower risk. You only get a benefit (and may lose something else) if the stocks are less risky and by enough. That may be somewhat true of dividend growers, which have more of a quality bent and are different from high dividend yield.

It may or may not be better to instead target a low- or min-volatility fund instead, if the stated goal is the true one.

Of course, better than that is obviously to reduce equity exposure and get something else instead, but presumably you know that and are asking about tilting stocks. But the point remains that you get very modest risk reduction from overweighting certain kinds of stocks, and it's not clear that you couldn't accomplish the same thing better by just reducing equity exposure a hair.
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whodidntante
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Re: International Dividend Funds

Post by whodidntante »

It's really a question of what the companies you invest in choose to do with their earnings. Companies could invest in new projects to grow their earnings, make acquisitions, grow capacity, make investments that improve efficiency, pay dividends, do share buybacks where allowed, or some mix of those. I don't think companies that look at their choices and chose to pay more dividends are less risky than those who chose otherwise. It certainly does not mean it is a fast growing company that will outperform going forward. Sometimes a big dividend means that the company's prospects for investment are limited and they believe their shares are overvalued by the market.

Some companies are also selling assets or taking on debt to sustain their dividend payout, and you have to wonder how long they can continue doing that if things do not develop in the company's favor. The poster child for this is energy stocks.
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Visitor
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Re: International Dividend Funds

Post by Visitor »

Thanks to all of you for replying.

I'm looking for something that provides international diversification but with less risk
and hopefully zigs when other stocks zag.

How do you feel about international bonds? I've read on here that most do not believe
they are an asset class that's worth the risk but wouldn't they theoretically lessen risk
overall?

I'll have to do some research on the Vanguard international bond index fund.

Do any of you believe international bonds have a place in in a well diversified portfolio or
just stick to a greater amount in domestic bonds?
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whodidntante
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Re: International Dividend Funds

Post by whodidntante »

Visitor wrote:Thanks to all of you for replying.

I'm looking for something that provides international diversification but with less risk
and hopefully zigs when other stocks zag.

How do you feel about international bonds? I've read on here that most do not believe
they are an asset class that's worth the risk but wouldn't they theoretically lessen risk
overall?

I'll have to do some research on the Vanguard international bond index fund.

Do any of you believe international bonds have a place in in a well diversified portfolio or
just stick to a greater amount in domestic bonds?
Less risk? I've never met a safe stock. Stocks are stocks, and come with plenty of risk no matter where they are domiciled. Consider stocks that have lower correlation to the U.S. market to see if that meets your diversification needs. International large cap developed is highly correlated to U.S. stocks. There are a lot of multinationals in that space. International small cap and EM are less correlated.

I think international bonds are fine as a piece of your total bond holding, but I personally don't make that a big %. International bonds are about 8% of my bond allocation, and that's only because I own a bond fund that is a global bond fund.
runner23
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Re: International Dividend Funds

Post by runner23 »

A larger international small cap equity allocation via Vanguards VSS ETF or mutual fund version may provide international diversification that "zigs when others zag"
lack_ey
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Re: International Dividend Funds

Post by lack_ey »

runner23 wrote:A larger international small cap equity allocation via Vanguards VSS ETF or mutual fund version may provide international diversification that "zigs when others zag"
Perhaps more so, but at least in the recent past it hasn't been that way, behaving very similarly and having high correlation.


Most broad stock funds are just not going to zig when others zag. With some sectors or more narrow groupings, perhaps a little bit. However, that increases volatility. There's always precious metals equity for an example of something volatile that actually has a shot of behaving differently from most other stocks.

A tilt to international low volatility-focused funds, maybe international consumer staples, something else along those lines might reduce risk but these are notably not all that cheap now, probably rightly so. This likely sacrifices upside as well. Also, with international stocks you get the currency risk riding on top unless you hedge that.

I don't think this search for some grouping of stocks that's marginally less risky is really much of a fruitful endeavor. If in general you think you're getting meaningful risk reduction (the effect isn't that large), you're probably fooling yourself.

As for international bonds, what's the point now? The yields are low, unless maybe you mean EM. What do you even need diversification from in US bonds that going to international would help with? Term risk? You can just park some money in direct bank CDs and savings accounts to diversify from term risk of marketable bonds.
dltnfs
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Re: International Dividend Funds

Post by dltnfs »

Visitor wrote:How do you feel about international bonds? I've read on here that most do not believe
they are an asset class that's worth the risk but wouldn't they theoretically lessen risk
overall?
Unhedged international bond funds give you forex risk. Unless you have liabilities denominated in those foreign currencies (like, unless you live part-time in one of the countries, or you spend a lot of money on something imported from there), that's an uncompensated risk, since forex is zero-sum but nonzero volatility.

You could hedge a bond that pays 1M EUR a year from now by entering in to a currency forward to sell 1M EUR and buy USD a year from now. You have now locked in your payout in USD, so that essentially gives you a synthetic USD bond, so its value is sensitive only to USD interest rates. The only diversification that you get is on the credit risk. Except for junk bonds or whatever, that doesn't seem too interesting.

You could hedge a bond that pays 1M EUR a year from now by entering in to a currency forward to sell the current market value of that bond in EUR and buy USD a month from now, and then, every month, repeat that process. That gives you a bond whose value is insensitive to the exchange rate, but sensitive to the EU's interest rates--so you're diversified across the multiple currencies' yield curves too. I think that's roughly what Vanguard does with BNDX, and that's perhaps more interesting.
dkturner
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Re: International Dividend Funds

Post by dkturner »

nisiprius wrote:
Visitor wrote:...Could these funds help lower risk in bear markets because of the dividend component?...
Did they "help lower risk" in the last bear market in domestic stocks?

Blue, Vanguard High Dividend Yield Index Fund, VHDYX. 54% drop.
Orange, Vanguard Total Stock Market Index Fund, VTSMX. 52% drop.

Where do you see the "lower risk?" I promise not to claim that Total Stock had "lower risk" if you'll promise not to claim that High Dividend Yield had "lower risk." Let's agree to say they behaved "just about the same."

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OTOH, comparing The Vanguard Dividend Appreciation Fund (VDIGX) with the Vanguard Total Stock Market Index Fund (VTSAX) for the period 10/7/07 through 3/6/09 (I believe those were the bear market start and stop dates) shows a decline of "only" 41.4% for VDIGX compared to a decline of 54.6% for VTSAX.
tyc
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Re: International Dividend Funds

Post by tyc »

If you're afraid of the bear market and don't care about return, then holding "CASH" or "Money market" is also another option. Cash / Money market is a form of diversification and have almost 0 correlation to most investment out there.

Here is also another good part, there is no or very low ER in money market. Just make sure you don't put into these High yield or Enhanced Cash+ money market funds or some other creative names. They are not true money market funds.

The catch is the small return, very close to 0 (ZERO)!!!
jjface
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Re: International Dividend Funds

Post by jjface »

I had a look at one of them but the trading volume was too low. Too new for me.
youngdlplat
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Re: International Dividend Funds

Post by youngdlplat »

I've been thinking for a while now of adding one of these funds to my portfolio. I tilt toward value in my portfolio, and the international high dividend yield hits that international large value. Right now, among my international holdings, I'm 60% Total International Market Index, 20% FTSE-ex US Small Cap, and 20% Emerging Markets Index, so I already have a tilt in my international holdings toward small cap and emerging markets.

What I'm curious about is why the indexes these funds track have performed so poorly over the past 10 years. These funds represent the bluest of blue chips on the non-US front. They have been profitable. They are throwing off high dividends.

Is most of the loss attributable to currency and the fact that dollar has been strengthening? And does that fact make these funds undesirable if one wants blue-chip, value type international stocks? One other thought -- I realize that no one knows where currencies go next (and the Euro could certainly continue to decline), but it seems to me that the dollar has been strengthening for so long that we may see a reverse in that before too long That would help the NAV of these funds go up, but then would that mean that investing in these funds is most about currency speculation than traditional investing with a focus on metrics like value and quality? I appreciate any insight this board has.
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Re: International Dividend Funds

Post by Doc »

Visitor wrote:I'm looking for something that provides international diversification but with less risk and hopefully zigs when other stocks zag.
lack_ey wrote:Also, with international stocks you get the currency risk riding on top unless you hedge that.
But the currency risk cuts both ways and therefore may give you the zig that you are looking for.

Make a chart like Nisi showed and use two international funds, one hedged and one not and see the effect. Tweedy Browne had two very similar funds one hedged and one not. (Tweedy, Browne Global Value TBGVX and Tweedy, Browne Global Value II Ccy Unhdg TBCUX that might give you some idea as to the effect if any.)

(I'm not suggesting that you use either of these two funds, only that you use them as a model for the hedging effect.)
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