PID - IGRO: Unattractive Relative To Peers

2023-10-26 12:29:39 ET

Summary

• iShares International Dividend Growth ETF tracks the Morningstar Global ex-US Dividend Growth Index and holds 388 stocks.
• The IGRO fund is overweight in financials and has a significant presence in Europe and Asia.
• IGRO has underperformed compared to several competitors and has lagged behind inflation.

This article series aims at evaluating ETFs (exchange-traded funds) regarding the relative past performance of their strategies and metrics of their current portfolios. Reviews with updated data are posted when necessary.

IGRO strategy and portfolio

iShares International Dividend Growth ETF ( IGRO ) started investing operations on 05/17/2016 and tracks the Morningstar Global ex-US Dividend Growth Index. It has a portfolio of 388 stocks, a 12-month distribution yield of 2.73%, and a total expense ratio of 0.15%. Distributions are paid quarterly.

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 ranked on dividend yield.

The fund invests mostly in large and mega cap companies (about 87% of asset value). Europe represents about 44% of assets and the second region is Asia with 34%. Canada is the top country (19.6%), shortly ahead of Japan (18.8%). Then, come Switzerland (12.2%) and the U.K. (12%). Other countries are below 6%. China and Hong Kong weigh 8.6% together, so direct exposure to geopolitical and regulatory risks related to China is moderate.

The fund is overweight in financials (27% of assets). The other most significant sectors are healthcare (16.3%), consumer staples (12.6%) and industrials (12.2%).

The top 10 holdings, listed below, represent 27.7% of asset value. The heaviest position weighs about 3% as of writing, so risks related to individual companies are low.

* Tickers in primary exchanges. Some of them have U.S. ADRs: copy and paste the company name in Seeking Alpha’s search box to find them.

Past performance compared to competitors

The next chart compares the total returns since 5/23/2016 of IGRO and four non-hedged international dividend growth ETFs:

• Invesco International Dividend Achievers ETF ( PID ), reviewed here ,
• WisdomTree Global ex-U.S. Quality Dividend Growth ( DNL ), reviewed here ,
• WisdomTree International Quality Dividend Growth Fund ( IQDG ), reviewed here ,
• Vanguard International Dividend Appreciation ETF ( VIGI ).

DNL is leading the pack and IGRO is lagging behind its peers. However, it has beaten one of them, PID, in 2023 to date:

The share price has gained about 16% since inception, lagging the cumulative inflation (about 28% in the same time, based on CPI). This is partly due to currency rates: the dollar index has gained a bit more than 10% in this period, which has been detrimental to assets and dividends denominated in other currencies.

The annual sum of distributions has slightly increased between 2017 and 2022, from $1.44 to $1.55 per share. It is a growth of 7.6% in 5 years, while the cumulative inflation has been about 20%.

Takeaway

iShares International Dividend Growth ETF holds 388 international stocks with at least 5 years of dividend growth. The heaviest countries are Canada, Japan, Switzerland and the U.K. It is well-diversified across countries and holdings, but it is overweight in financials, with 27% of asset value in this sector. Performance since inception is underwhelming: the share price and distributions have lagged inflation, partly due to currency rates variations. Currency risks may be favorable (or not) to the fund’s value and dividend in the future. Anyway, IGRO has lagged at least four other global dividend growth ETFs, which makes it quite unattractive relative to peers.

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