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.
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)
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.
