Summary
Global stocks are gaining, if not at the pace of domestic equities. While the S&P 500 has risen 17% year to date, the EAFA index of large- and mid-cap stocks based in countries other than the U.S. and Canada has gained 9.5%. Over the past five years, the performance gap has been wider, with the S&P 500 advancing 94% compared to a 32% gain in EAFE. But the underperformance has given global stocks a valuation advantage, particularly in the area of dividends. Consider that the EAFE dividend yield of 2.9% is 170 basis points higher than the comparable S&P 500 dividend yield. We think global dividend stocks now offer opportunity, particularly given the endless speculation over the direction of interest rates in the U.S., which has created market-timing headaches for equity income investors, who have endured recent wide swings in prices for rate-sensitive equity in areas such as utilities, REITs and MLPs. In our view, investing in international income stocks is one way to increase portfolio diversification while reducing sensitivity to volatile U.S. interest rates. Investing in overseas stocks carries its own set of risks, including the impact of currency exchange and geopolitical turmoil. But there are also a number of positives in this asset class for U.S. investors, including a wide selection of companies that pay
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