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The new fund will hold international companies Vanguard believes will consistently raise their dividends. Above, a broker at the Pakistan Stock Exchange on July 31.
Rizwan Tabassum/Getty Images
Investors should take note any time a money manager with more than $7 trillion in assets does something new. That includes a move by Vanguard into international dividend-paying stocks.
Friday, the investment fund company unveiled an International Dividend Growth Fund that will hold shares of international companies that Vanguard managers believe will consistently increase their dividends.
“Vanguard creates products designed to meet the long-term needs of investors and help give them the best chance for investment success,” said Dan Reyes, global head of the Portfolio Review Department at Vanguard, in a news release. “Partnering with world-class investment talent is an integral part of Vanguard’s disciplined, research-based process for developing a product lineup with enduring investment merit.”
The fund will be managed by a team from Wellington Management Company, which manages the
Vanguard Dividend Growth Fund
(ticker: VDIGX).
It isn’t clear why Vanguard is offering the fund right now. Dividends have been a little out of favor lately. The Vanguard Dividend Growth Fund is up about 1% year to date, while the
S&P 500
has added 14%. Both those figures exclude dividends.
International 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 U.S. growth stocks such as
Nvidia
(NVDA). The
Nasdaq Composite
is up about 27% year to date, helped by Nvidia shares, which have gained almost 200%.
That means the Vanguard fund offers investors a chance to zig when others are zagging.
Valuations add to the appeal. Stocks in the International Stock ETF trades for less than 13 times the earnings analysts expect for the coming 12 months. That is a small discount to the five-year average and far below the 26 times multiple for the
Nasdaq Composite.
International stocks’ discount to the Nasdaq is also a little larger than it has been historically.
The U.S. dollar is another favorable factor. It is much stronger than it was a few years ago. The U.S. Dollar Index (DXY), which measures the dollar against a basket of other currencies, is at about 103, up from about 91 before the Federal Reserve started raising interest rates in March 2022.
Higher rates, or rates rising faster, in one country versus another can be a reason for currency values to change. Investors have to hold local currency to buy assets yielding higher rates. With the Fed rate-hike cycle nearing an end, foreign currencies could strengthen, making dividends paid in foreign currencies more valuable.
Vanguard said it doesn’t consider such factors when it launches products. “Vanguard’s approach to product development is grounded in offering funds that provide long-term, enduring investment merit throughout market cycles,” a spokesperson said via email. “We don’t time product launches around relative market valuations. We believe low-cost active strategies that rely upon an enduring and repeatable investment process are best suited to add value by offering investors the opportunity to outperform the markets.
Avoiding market timing is sound advice. It is also always a good idea to diversify. That can mean diversity across countries, asset classes, and even in terms of growth versus dividend-paying stocks. Growth stocks are great now, but investors shouldn’t forget that dividends account for roughly 40% of total stock returns over the long run.
Write to Al Root at [email protected]
Source: https://www.barrons.com/articles/vanguard-international-dividend-growth-fund-475a6e03?siteid=yhoof2&yptr=yahoo