IGRO: International Dividend Growth

Summary

• IGRO is overweight in Europe and financials.
• Its total return since inception is disappointing.
• Why I prefer VIGI and DNL.
• Looking for a helping hand in the market? Members of Quantitative Risk & Value get exclusive ideas and guidance to navigate any climate. Learn More »

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This dividend ETF review series aims at evaluating products regarding their past performance and their current portfolio quality.

IGRO strategy and portfolio

The iShares International Dividend Growth ETF (BATS:IGRO) has been tracking the Morningstar Global ex-US Dividend Growth Index since 05/17/2016. It has a portfolio of 387 stocks (over 400 holdings in total including cash in various currencies, funds and derivatives), a 12-month distribution yield of 2.44% and a total expense ratio of 0.15%.

As described in the prospectus by iShares, eligible companies must:

• pay a qualified dividend,
• have at least five years of uninterrupted annual dividend growth,
• have an earnings payout ratio of less than 75%,
• not be in the top decile of the Morningstar Global Markets ex-US Index based on dividend yield.

About 47% of asset value is in Europe and the second region is Asia with 27%. The next chart lists the top 10 countries (with an aggregate weight of about 85%). Canada is the heaviest one by far with 20.3%. China and Hong Kong weigh about 9% together: it is much less than in a number of international dividend ETFs, and it is a good point for investors who are wary of geopolitical and regulatory risks.

IGRO countries. Chart: Author with Fidelity data.

The fund is overweight in financials (26.6%), then come consumer staples (15.5%), industrials (14%) and healthcare (10.7%). Other sectors don’t exceed 8% individually and 31% in aggregate.

IGRO sectors. Chart: Author with Fidelity data.

The P/E ratio looks cheap at 15.2. However, valuation ratios are naturally low and not very meaningful in the fund’s heaviest sector. As a reminder, the Financial Select Sector SPDR ETF (XLF) has a P/E of 11.4.

The portfolio is mostly in large-cap companies (86%).

Chart: Author with Fidelity data.

The top 10 holdings, listed below, represent 29% of asset value. No holding weighs more than 3.3% as of writing, so the idiosyncratic risk related to individual stocks is low.

Name and US ticker (the fund may invest in local ticker)	Weight (%)	Sector	Location
TORONTO-DOMINION (TD)	3.28	Financials	Canada
NESTLE SA (OTCPK:NSRGY)	3.24	Cons. Staples	Switzerland
ROYAL BANK OF CANADA (RY)	3.04	Financials	Canada
SANOFI SA (SNY)	2.94	Health Care	France
ALLIANZ (OTCPK:ALIZF)	2.94	Financials	Germany
SIEMENS AG (OTCPK:SIEGY)	2.91	Industrials	Germany
NOVARTIS AG (NVS)	2.81	Health Care	Switzerland
UNILEVER PLC (UL)	2.79	Cons. Staples	United Kingdom
ENEL (OTCPK:ENLAY)	2.59	Utilities	Italy
IBERDROLA SA (OTCPK:IBDRY)	2.38	Utilities	Spain

Click to enlarge

Past performance compared to competitors

The next table compares IGRO performance since 6/1/2016 with three international dividend growth ETFs:

• The Invesco International Dividend Achievers ETF (PID), reviewed here (yield about 2.9%).
• The Vanguard International Dividend Appreciation ETF (VIGI), reviewed here (yield about 1.1%).
• The WisdomTree Global ex-U.S. Quality Dividend Growth (DNL) (yield about 1.6%).

Since 6/1/2016	Total Return	Annual Return	Drawdown	Sharpe	Volatility
IGRO	58.37%	8.81%	-36.25%	0.57	15.44%
PID	61.02%	9.15%	-46.07%	0.53	17.44%
VIGI	80.92%	11.51%	-31.01%	0.79	13.18%
DNL	107.25%	14.33%	-32.18%	0.91	14.12%

Click to enlarge

Data calculated with Portfolio123, reinvesting dividends.

Most international funds have underperformed the U.S. market: SPY has returned 145.9% in the same time (14.33% annualized). IGRO has the second highest yield (after PID), but lags these three competitors in total return. It is less volatile than PID and beats it by a short margin in risk-adjusted performance (Sharpe ratio). DNL, a low-yield dividend growth fund with quality filters, is the best performer here.

Takeaway

IGRO holds almost 400 dividend stocks, mostly from developed countries. Europe represents about 47% of asset value and Canada about 20%. It is overweight in financials, which may be a bad point or a good one depending on what you are looking for. Valuation ratios are biased by sector composition, so the weight of financials means the fund might not be as cheap as it looks.

The yield is quite high for a dividend growth fund, but total return since inception is underwhelming relative to competitors. I prefer the WisdomTree Global ex-U.S. Quality Dividend Growth (DNL) and the Vanguard International Dividend Appreciation ETF (VIGI). They have more balanced profiles in sectors and countries, better quality filters, a higher total return in the past and a lower risk measured in maximum drawdown and historical volatility.

For transparency, a dividend-oriented part of my equity investments is split between a passive ETF allocation (DNL and VIGI are parts of it) and my actively managed Stability portfolio (14 stocks), disclosed and updated in Quantitative Risk & Value.

Disclosure: I/we have a beneficial long position in the shares of DNL, VIGI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.