What Is the Vanguard International Dividend Appreciation ETF (VIGI), and Who Should Buy It?
Investors who are concerned about the high valuations of U.S. tech stocks, or who want to diversify their portfolios beyond U.S. stocks, are showing interest in international stocks. Buying international stock-focused exchange-traded funds (ETFs) can be a good way to put your money to work in other parts of the global economy.
Recent Vanguard research forecasts that “developed markets outside the U.S.” could be among the best investment opportunities over the next few years. One way to pursue that strategy is to invest in the Vanguard International Dividend Appreciation ETF (VIGI +0.21%). This ETF holds a portfolio of stocks focused on developed market economies, with a heavy weighting toward Japanese, Canadian, Swiss, German, and British stocks.
Let’s take a closer look at what this international dividend ETF offers to investors, and who might want to consider buying it.
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Vanguard International Dividend Appreciation ETF (VIGI): 343 stocks, 2.13% dividend yield
The Vanguard International Dividend Appreciation ETF offers exposure to 343 global stocks from 24 countries beyond the U.S. market. The fund invests in companies with a history of dividend growth. It charges a low expense ratio of 0.07%.
Despite recent investor enthusiasm for international stocks, this fund has delivered underwhelming returns. It’s delivered average annual total returns (by net asset value) of 8.1% in the past 10 years, 4.9% for the past five years, 11.3% for the past three years, and 9.4% for the past year.
Vanguard Whitehall Funds – Vanguard International Dividend Appreciation ETF
Today’s Change
(0.21%) $0.20
Current Price
$94.46
Key Data Points
AUM
$9.2B
Dividend Yield
2.11%
Expense Ratio
0.07%
Top Holdings
RY.TO
4.52%
8306.T
3.98%
NESN.SW
3.83%
The fund’s dividends are good, but not great. It has a trailing 12-month dividend yield of 2.13%, which is less than the yields of some of the best dividend index funds.
What do you get when you invest in VIGI? The fund’s portfolio consists mainly of developed markets. Only 5.1% of the fund’s assets are invested in emerging market stocks. The top five countries represented in the portfolio are Japan (30.9% of the fund), Canada (23%), Switzerland (14.4%), Germany (5.5%), and the United Kingdom (5.6%).
The top 10 stock holdings include global financial stocks like Royal Bank of Canada (4.47% of the fund), consumer staples giant Nestlé (3.8%), Swiss pharmaceutical majors like Novartis (3.55%) and Roche Holding AG (3.39%), and global tech stocks like Germany’s SAP (3.3%) and Japan’s Hitachi (2.6%).
Reasons to buy VIGI … or not
If you believe that these other countries and more value-oriented sectors of the global economy are likely to outperform in the future, the Vanguard International Dividend Appreciation ETF can give you a decently well-diversified portfolio to fit that investment theme. However, this fund has a few possible risks and downsides. For one, it has a long track record of being outperformed (more than 2-to-1) by the S&P 500 index.
Data by YCharts.
The VIGI dividend yield is also less than impressive. A portfolio of only 343 stocks might not be enough diversification for many investors’ goals, especially since this fund is heavily concentrated in just a few countries. More than 50% of the fund is invested in Japan and Canada.
I don’t own this fund, and I don’t rate it as a strong buy. Buying a more broadly diversified high-dividend ETF like the Vanguard International High Dividend Yield ETF (VYMI +0.20%) might be a better choice for most long-term investors seeking international exposure.
