At the recent Exchange conference, there was much chatter among advisors concerning the growing role of international dividends.
Todd Mathias, Head of U.S. ETF Product Strategy & Development at Franklin Templeton, sat down with VettaFi to discuss the shift toward international dividend strategies.
The Advantage of International Dividends
Many advisors are asking why they should focus on generating income from international markets now, Mathias noted. The answer, he suggests, lies in the fundamental composition of these markets compared to the tech-heavy U.S. landscape.
While U.S. markets are currently driven by technology firms that prioritize R&D, international markets – specifically in the Automotive and Financial sectors – have a long history of paying out a larger portion of their income to investors. Mathias highlighted household names like Mercedes-Benz and BMW, as well as healthcare providers in Denmark and Switzerland, as examples of high-yielders that offer a different profile than the Mag Seven style growth seen in the U.S.
To bolster portfolios with international dividends, Mathias detailed three specific products. These function as a cohesive suite with very little overlap in common holdings.
First, the Franklin International Core Dividend Tilt Index ETF (DIVI) can be described as the anchor of an international sleeve. This fund offers a tilt toward income with low active risk relative to the overall market.
Meanwhile, the Franklin International Low Volatility High Dividend Index ETF (LVHI) focuses on the low volatility factor, aiming to lower risk relative to the broad market through currency hedging and a focus on high-quality, profitable companies.
Finally, for those in pursuit of the highest income stream, the Franklin International Dividend Booster Index ETF (XIDV) targets high-yield opportunities with controlled risk.
Looking Ahead at the ETF Industry
Looking ahead, Mathias shared a bold prediction for the industry. Franklin Templeton expects that by 2040, the ETF industry will reach $90 trillion in assets. Furthermore, the firm anticipates active products or “active insights delivered through an index-based approach” will receive 45% of that.
As the generational shift continues, Mathias observes that the need for an income stream in an “okay” rate environment — and the volatility dampening that comes with it — has made international dividends a top-of-mind topic.
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VettaFi LLC (“VettaFi”) is the index provider for XIDV, for which it receives an index licensing fee. However, XIDV is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of XIDV
Facts Only
Todd Mathias, Head of U.S. ETF Product Strategy & Development at Franklin Templeton, discussed international dividend strategies at the Exchange conference.
International markets, particularly in the Automotive and Financial sectors, have a history of paying out larger portions of their income to investors compared to the tech-heavy U.S. landscape.
Examples of high-yielders with a different profile than the Mag Seven growth seen in the U.S. include Mercedes-Benz, BMW, Danish healthcare providers, and Swiss healthcare providers.
The Franklin International Core Dividend Tilt Index ETF (DIVI) offers a tilt toward income with low active risk relative to the overall market.
The Franklin International Low Volatility High Dividend Index ETF (LVHI) focuses on the low volatility factor, aiming to lower risk through currency hedging and a focus on high-quality, profitable companies.
The Franklin International Dividend Booster Index ETF (XIDV) targets high-yield opportunities with controlled risk.
By 2040, the ETF industry is projected to reach $90 trillion in assets, with active products expected to account for 45% of that total.
Executive Summary
In a recent Exchange conference, the discussion centered around the growing importance of international dividends in investment strategies. Todd Mathias, Head of U.S. ETF Product Strategy & Development at Franklin Templeton, highlighted the potential advantage of generating income from international markets due to their composition, particularly in sectors like Automotive and Finance. He presented three products for incorporating international dividends into portfolios: the Franklin International Core Dividend Tilt Index ETF (DIVI), the Franklin International Low Volatility High Dividend Index ETF (LVHI), and the Franklin International Dividend Booster Index ETF (XIDV).
Looking forward, Mathias predicted that by 2040, the ETF industry could reach $90 trillion in assets, with active products comprising approximately 45% of that total. He suggested that international dividends are gaining attention as a result of the generational shift and the need for income streams in a moderate interest rate environment.
Full Take
The Steelman narrative presents international dividend strategies as an attractive option for generating income in a moderate interest rate environment, particularly due to the composition of international markets compared to the tech-heavy U.S. landscape. Mathias's predictions about the ETF industry's growth and focus on active products align with this perspective.
Pattern analysis reveals no evident manipulation patterns in the article. However, it is essential for readers to approach news reports objectively, critically evaluating sources and claims.
The root cause of this narrative lies in market trends and shifts, particularly the increased focus on income-generating strategies as interest rates remain moderate. This echoes historical patterns of investors seeking alternative sources of income when traditional options are less profitable.
In terms of implications, Mathias's prediction for the ETF industry suggests a continued growth trajectory in this sector, with a significant portion dedicated to active products that offer differentiated strategies such as international dividend investing. This could provide new opportunities for investors but also introduces additional risks and complexities.
Bridge questions include: How will the shift towards active products impact the overall ETF market? What other factors might influence the growth of international dividend strategies?