Why This International Dividend ETF Earns High Marks

Key Morningstar Metrics for Schwab International Dividend Equity ETF

• Morningstar Medalist Rating: Silver
• Process Pillar: Above Average
• People Pillar: Above Average
• Parent Pillar: Above Average

Schwab International Dividend Equity ETF builds a high-yield portfolio around stocks that are more profitable and stable than the market. Those characteristics, combined with a low fee, should lead to better risk-adjusted performance than the MSCI ACWI ex USA Value Index.

This exchange-traded fund tracks the Dow Jones International Dividend 100 Index. It starts with stocks in the Dow Jones Global ex-U.S. Large-Cap and Dow Jones Global ex-U.S. Mid-Cap indexes, and it refines those cohorts down to a select portfolio of just 100 stocks. The index excludes REITs and searches for stocks with high dividend yields, greater profitability and free cash flow, lower volatility, and a long history of regular cash dividend payments. It focuses on the top names that meet these criteria while incorporating some buffer rules to keep turnover within reasonable levels. Schwab International Dividend Equity ETF also promotes diversification by limiting single stock weightings to 4%, sector weightings to 15%, and emerging markets to 15%.

The resulting portfolio favors dividend payers that are likely to maintain their dividend payments. On average, its profitability has been consistently higher than the MSCI ACWI ex USA Value Index’s, and it has tended to incur less of the market’s risk. Its trailing 12-month yield of 6% was about 1.7% higher than the value index’s at the end of November 2024. That said, yield does not play a big role in the portfolio’s overall ability to deliver strong risk-adjusted returns relative to the index.

Schwab International Dividend Equity ETF’s preference for stable companies tends to influence its composition. As of November 2024, it favored stocks from the consumer staples and communications sectors. Less than 20% of its portfolio was parked in stocks from the energy, information technology, and consumer discretionary sectors.

Schwab International Dividend Equity ETF: Performance Highlights

This ETF’s limited track record shows its potential. So far, it has performed like a defensive fund. Its volatility came in about 12% lower than the MSCI ACWI ex USA Value Index’s from its late-April 2021 launch through November 2024, while its total return trailed the benchmark by about 1.4 percentage points annualized. Most of that deficit occurred over the past two years as the Morningstar Category index increased at a steady clip.

Lagging performance during bull markets is expected for a defensive ETF like Schwab International Dividend Equity ETF, and similar index-relative performance has occurred in the past. The ETF’s target benchmark, the Dow Jones International Dividend 100 Index, trailed the MSCI ACWI ex USA Value Index by 1.4 percentage points over the last nine months of 2020 as global markets emerged from the covid pandemic drawdown.

Overall, the ETF tends to be less sensitive to the market’s moves than the category index, while incurring shallower drawdowns. For example, the ETF’s target benchmark outperformed the MSCI ACWI ex USA Value Index by 7.5 percentage points per year during the global financial crisis from January 2008 through February 2009. Likewise, it beat the category index by 10.8 percentage points when the pandemic pulled markets lower over the first three months of 2020.