DFIV - DFIV: Decent Yield And Strong Price Growth For This Newly Listed Ex-U.S. ETF

2023-06-29 16:59:30 ET

Summary

• Dimensional International Value ETF invests in targeted developed, mature economies with high sovereign bond ratings. A low turnover ratio also suggests continuity in its holdings.
• DFIV’s stock selection has been impressive so far, and its emphasis on basic materials, industrial, financial and healthcare stocks is delivering results.
• Major investments of DFIV had a good past 12 months. DFIV, too, registered a double-digit price growth, and a total return quite close to that of the S&P 500.
• DFIV’s quarterly distribution, decent yield coupled with high price growth during a period of economic downturn should attract short-term investors.

~ by Snehasish Chaudhuri, MBA (Finance).

Dimensional International Value ETF ( DFIV ) is an exchange-traded fund ("ETF") that invests in diversified sectors of global equity markets except that of U.S. markets. It is designed to generally purchase securities of large non?U.S. companies in developed markets. The fund invests mostly in countries with high sovereign bond ratings. 75 percent of this fund is invested in the core sectors, i.e., financial, energy, materials, industrial, and healthcare. DFIV's top investment destinations are Japan, the United Kingdom, France, Switzerland, Canada, Germany, Australia, and the Netherlands. The fund pays quarterly dividends and generates a decent yield. The price return over the past one year has been good. Its portfolio has a weighted average price to equity (P/E) ratio of 8.3, and DFIV is trading almost at par with its net asset value of $32.4.

DFIV Is Slightly Better Than Its Benchmark Since The Time It Has Been Listed

The Dimensional International Value ETF was launched and is managed by Dimensional Fund Advisors LP. The fund manager has specified two investment goals: (i) minimizing or deferring the realization of net capital gains, and offsetting gains through selling stocks with capital losses; and (ii) ensuring that the net capital gains are realized in such a way that it attracts lower capital gains tax rates. The fund seeks to benchmark the performance of its portfolio against the MSCI World ex USA Value Index (net dividends). But DFIV's price multiples are lower than that of the index, thus, wiping out any scope of overvaluation. On the other hand, growth in dividend, cash flow and book value is higher in DFIV when compared to its benchmark index.

DFIV's Major Investments in Energy, Materials, Industrial, Healthcare Sectors

Dimensional International Value ETF invested in energy majors like Shell Plc ( SHEL ), TotalEnergies SE ( TTE ), Woodside Energy Group Ltd ( WOPEF ), BP p.l.c. ( BP ), Suncor Energy Inc. ( SU ), Shell Plc ( RYDAF ), Santos Limited ( STOSF ) and Repsol, S.A. ( REPYY ) and in stocks of major material and mining companies such as BASF SE ( BASFY ), Holcim Ltd ( HCMLF ), Teck Resources Limited ( TECK ), Nutrien Ltd. ( NTR ) and CRH Plc ( CRH ). Major investments in the Industrial sector included Mitsubishi Corporation ( MSBHF ), Compagnie de Saint-Gobain S.A. ( CODGF ), DSV A/S ( DSDVF ) and Sumitomo Corporation ( SSUMF ). Sanofi ( SNYNF ), Novartis AG ADR ( NVS ), Bayer Aktiengesellschaft ( BAYZF ), Takeda Pharmaceutical Company Limited ( TKPHF ), Glencore Plc ( GLCNF ), Genmab A/S ( GMAB ) and NOVARTIS AG ( NVSEF ) are few investments of Dimensional International Value ETF in the healthcare sector.

Stocks of major miners are on the rise since the Russian invasion of Ukraine. The supply shortage has made these stocks dearer. During the past year, HCMLF and CRH grew by 60 percent, while TECH registered a price growth of 23 percent. Performance of healthcare stocks was also satisfactory. GMAB, NVS, NVSEF and TKPHF - all grew in between 12 to 19 percent. However, the best growth was delivered by industrial stocks. MSBHF grew by 62 percent, SSUMF by 58 percent, DSDVF by 40 percent and CODGF by 36 percent. Energy stocks, however disappointed. BP grew by 20 percent, while RYDAF and TTE grew by 9 and 6 percent, respectively. All other stocks had very poor price growth.

DFIV Is Overweight In Financial Sector, Invests In Renowned Banks Worldwide

However, the industry from which the Dimensional International Value ETF selected the maximum number of stocks is the financial sector. Among the top 65 investments of DFIV, 26 stocks are from the financial sector. This list includes a few insurance stocks such as Zurich Insurance Group AG ( ZFSVF ), Axa SA ( AXAHF ), ING Groep N.V. ( ING ), Fairfax Financial Holdings Limited ( FRFHF ), Société Générale Société anonyme ( SCGLF ), Swiss Re AG ( SSREF ), Manulife Financial Corporation ( MFC ) and Aviva plc ( AIVAF ). These are some of the largest and most renowned insurance companies all over the globe.

A significant number of banking stocks feature among the top investments of Dimensional International Value ETF, such as Mitsubishi UFJ Financial Group, Inc. ( MUFG ), HSBC Holdings plc ( HSBC ), The Bank of Nova Scotia ( BNS ), Bank of Montreal ( BMO ), ANZ Group Holdings Limited ( ANZGF ), National Australia Bank Limited ( NAUBF ), UBS Group AG ( UBS ), BNP Paribas SA ( BNPQF ), UniCredit S.p.A. ( UNCFF ), Banco Santander, S.A. ( SAN ), Lloyds Banking Group plc ( LLDTF ), Westpac Banking Corporation ( WEBNF ), Canadian Imperial Bank of Commerce ( CM ), BARCLAYS PLC ( BCS ), Banco Bilbao Vizcaya Argentaria, S.A. ( BBVA ), Sumitomo Mitsui Financial Group, Inc. ( SMFNF ), and Nordea Bank Abp ( NRDBY ).

Half of these financial stocks generated strong price growth during the past one year. Price of UNCFF was more than doubled. BBVA grew by 64 percent, FRFHF by 47 percent and SMFNF by 45 percent. NRDBY, HSBC, UBS, AXAHF, SAN, BNPQF, ING, SSREF and MUFG grew between 16 to 30 percent. The other half of those stocks had either single digit price growth or had suffered losses during the same period. Financial stocks hardly follow any universal pattern of growth because their growth is dependent more on economic growth, interest rates and inflation rates of respective nations. However, the good news is that losses incurred by a few of these stocks were relatively much smaller than the gains realized by the other half. Thus, on the whole, major investments of DFIV had a good past 12 months. Accordingly, Dimensional International Value ETF was able to register a price growth of 10.3 percent over the past one year.

DFIV Generated Decent Yield Coupled With High Price Growth In The Short Run

Dimensional International Value ETF has a significantly large asset base of $5.3 billion and expense ratio of 0.36 percent. The portfolio has a low turnover ratio of 12 percent. Over the past six months and one-year periods, the fund generated price growth of 7.3 percent and 10.3 percent, respectively; and over the past 21 months of its existence, it lost 2 percent of its value. Although the fund was introduced back in 1999, it was listed only in September 2021. So, the price history of this fund is relatively insignificant. DFIV paid quarterly dividends for the past 8 quarters and generated a yield close to 4 percent. However, the payouts were not steady and ranged between $0.0641 and $0.6704.

Investment Thesis

During the past one year, Dimensional International Value ETF delivered a total return that was quite close to that of S&P 500 (SP500). Its stock selection has been impressive so far, and its emphasis on basic materials, industrial, and healthcare stocks are delivering results. On the whole, major investments of DFIV had a good past 12 months. DFIV, too, registered a double-digit price growth over the past one year. It pays quarterly distribution and generates a decent yield. Decent yield coupled with high price growth during a period of economic downturn should attract short-term income-seeking investors.

Dimensional International Value ETF provides exposure to large-cap, value companies with quality and growth characteristics, belonging to some targeted developed international markets with high sovereign bond ratings. The fund targets core sectors of the economy and is heavily geared towards the financial sector. An extremely low turnover ratio also suggests continuity in its holdings.

As most international markets are moving in the upward direction, the future performances probably will get even better. Thus, I believe this fund has a decent growth potential. At the same time, there is nothing exceptional, for which investors should rush to accumulate Dimensional International Value ETF.

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