Investing in foreign equities has mostly been an exercise in self-inflicted pain throughout 2022, cautions David Dierking, editor of TheStreet's ETF Focus.
Yes, Europe is dealing with an energy crisis, China’s accelerating into a real estate crisis and Latin America is experiencing huge swings in volatility. Nevertheless, I think there’s some opportunity in international stocks.
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Emerging markets dividend ETFs are trading at P/E ratios in the single digits. The dollar rally looks wildly overdone. I don’t know if any of those factors will ultimately work out in investors’ favor in September, but I do think a mean reversion is overdue. With that in mind, I am suggesting a couple of ETF choices from international stocks:
iShares International Select Dividend ETF (IDV)
With a yield of 6.7% and a P/E ratio of 6, there’s clearly value to be had in this group. The big question is whether or not that value can be unlocked. IDV holds 100 stocks from non-U.S. and non-emerging market countries that are among the highest yielding available and dividend weights the portfolio.
In that way, it can be a little riskier than ETFs that focus on dividend growers or quality balance sheets, but I think this group could make a run.
Foreign equities have done relatively well recently and the latest rate decision from the ECB could be the catalyst that puts a top in for the dollar. A declining dollar would be a benefit for international stocks and deep value names could do particularly well.
WisdomTree Emerging Markets High Dividend ETF (DEM)
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Here’s essentially the emerging markets equivalent of IDV. The case for DEM for is essentially the same, although the matching P/E of 6 and yield of nearly 10% is perhaps even more attractive. It’s very concentrated, though, with 2/3 of the fund’s assets going to China, Taiwan and Brazil.
All three countries are political hotspots and undergoing significant challenges — China with the real estate market, Taiwan and its relationship with China and Brazil with double digit inflation and political risk. It’s a home run swing that could potentially pay off.
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