Soaring oil prices and the military conflict in Iran are among the primary reasons the MSCI EAFE Index is off nearly 6% over the past month. That decline isn’t surprising; many of the marquee developed markets comprising that index are energy importers. Those looking for a silver lining at the intersection of geopolitical tensions and international equities don’t need to stretch, though. The asset class’s bull market is intact. That indicates that the aforementioned retreat by the MSCI EAFE Index may be an opportunity to examine ETFs such as the ALPS O’Shares International Developed Quality Dividend ETF (OEFA).
Its fundamental focus includes an emphasis on metrics such as companies’ leverage, dividend growth and return on assets (ROA). Therefore, OEFA could prove to be a compelling mix of near-term buffer with long-term rewards.
Case for OEFA Still Strong
Near-term weakness doesn’t dent the longer-ranging thesis for having some exposure to international equities. After all, the dollar is weak and the asset class is coming off an impressive year of outperforming domestic stocks.
“It’s not just a matter of investing in what’s done well recently. Rather, after years of domestic stocks crushing their international rivals, many investor portfolios are heavily tilted toward U.S. names. Upping your exposure to international stocks may be a smart way to even things out,” reported CNBC.
Indeed, the slumping dollar is a potential tailwind for international equities ETFs such as OEFA. That also goes for pledges from European nations to boost defense spending, because OEFA allocates 27.58% of its weight to industrial stocks. That’s by far its largest sector exposure.
“Fiscal stimulus and announcements for increased European defense are among factors that bolstered returns in developed markets,” according to CNBC. “Aiding foreign stocks across the board was a steady decline in the value of the U.S. dollar, meaning that American investors got more dollars for profits international companies earned in foreign currencies.”
Another benefit offered by OEFA is efficient diversification. In the U.S., there’s evidence of a sector rotation weighing on some tech-heavy benchmarks. The ALPS ETF provides some protection against the tech reset trend because its weight to that sector is just 11%.
Additionally, OEFA can deliver on the promise of payout growth. Its trailing 12-month yield is just 2%. That indicates that dividend obligations aren’t burdening member firms.
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VettaFi LLC (“VettaFi”) is the index provider for OEFA, for which it receives an index licensing fee. However, OEFA is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of OEFA.
