This Global ETF Beat the Nasdaq-100 for Most of the Past Year. Should You Buy It?
Key Points
The Vanguard International High Dividend Yield ETF has delivered 21% annualized returns for the past three years.
It recently outperformed the Nasdaq-100 index over an 11-month period.
The Invesco QQQ Trust has outperformed this international dividend stock ETF over a longer time frame, but its price-to-earnings ratio is much higher than the Vanguard fund.
- 10 stocks we like better than Vanguard International High Dividend Yield ETF ›
Usually, tech stocks are the best place to put your money, right? Not always. International dividend stocks have been strong lately.
Until mid-April, the Vanguard International High Dividend Yield ETF (NASDAQ: VYMI) had outperformed the Invesco QQQ Trust (NASDAQ: QQQ), which tracks the tech-heavy Nasdaq-100 index, for about the previous 11 months.
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VYMI Total Return Level data by YCharts
Even though the Nasdaq-100 has recently rallied, this is a good reminder that growth stocks don't always beat value stocks. These two ETFs have quite different investment goals and portfolios. But for some investors, buying the Vanguard International High Dividend Yield ETF could be a good move -- even compared with tech stocks.
Let's look at these two stock ETFs and see how to decide whether to add them to your portfolio.
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Vanguard International High Dividend Yield ETF: Reliably profitable companies from 45 countries
The Vanguard International High Dividend Yield ETF holds a total of 1,582 international stocks that are expected to deliver higher-than-average dividends. Forty-five countries are represented in this fund. The top holdings are in developed markets like Japan and Western Europe, but the fund also has smaller holdings of stocks from emerging markets, including Brazil, India, and South Africa.
This is a well-diversified fund that lets you "buy the world" beyond the U.S. market. It's delivered average annual returns of 21% over the past three years and 13.2% over the past five years. And its expense ratio is quite low -- only 0.07%.
A big part of that success comes from the fund's strong focus on high-yield dividend stocks.
Top holdings include major financial stocks like HSBC Holdings (1.7% of the fund), big pharma stocks like Roche Holding AG (1.54%), global energy leader Shell (1.4%), consumer staples giant Nestlé (1.4%), and leading auto manufacturer Toyota Motor (1.07%).
These are steadily profitable, well-established companies. The international ETF pays a dividend yield of 3.47%, which is right up there with the best dividend index funds. And its price-to-earnings (P/E) ratio of 14.24 is much lower than the Invesco QQQ Trust P/E ratio of 35.
Invesco QQQ Trust: Easy way to buy the Nasdaq-100
Most people don't buy the Invesco QQQ Trust ETF for the dividends; its dividend yield is only 0.42%. Instead, this popular tech ETF is meant to be a growth accelerator by investing in the most innovative and profitable tech companies in America. "The Qs," as this fund is known, has delivered average annual returns of 15.3% over the past five years, and 21.1% for the past 10 years.
The fund's top five holdings (as of May 24) are all major tech names: Nvidia (8.55% of the fund), Apple (7.4%), Microsoft (5.1%), Amazon (4.7%), and Micron (3.8%). The Invesco QQQ ETF is an easy way to buy the world's most popular tech stocks at a reasonable expense ratio of 0.18%.
But can this strong performance continue? If you believe that U.S. tech stocks will keep beating the rest of the world, then international dividend stocks aren't the best choice for that strategy. If the Nasdaq-100 index's top holdings of semiconductor stocks and AI hyperscalers keep delivering massive growth, the Vanguard International High Dividend Yield ETF will likely be underwhelming compared to those returns.
But some investors are worried about the high valuations of tech stocks, and wonder if the artificial intelligence (AI) boom could turn into a bubble that bursts. Investors who want to diversify away from tech stocks and earn steady dividend income might want to choose the Vanguard International High Dividend Yield ETF instead of the Invesco QQQ Trust ETF -- at least for a portion of their portfolio.
Should you buy stock in Vanguard International High Dividend Yield ETF right now?
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HSBC Holdings is an advertising partner of Motley Fool Money. Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Micron Technology, Microsoft, and Nvidia. The Motley Fool recommends HSBC Holdings, Nestlé, and Roche Holding AG. The Motley Fool has a disclosure policy.
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