Exchange Traded Funds

In general I'm opposed to ETFs (and mutual funds) since you are essentially paying someone else to do work for you.  Maybe I'm just too proud or too cheap, but I'd rather do it myself.  That extends beyond investing into other areas of my life such as car maintenance and repairs.  But there is a real advantage of being a nimble self directed investor: fees!  Those pesky fees add up over time and is precisely why index funds never match the actual index.  Over decades those little expense ratios add up to thousands and thousands of dollars.  I was a fund investor in the past and was not happy with the results.

Explaining why ETFs suck isn't why I'm writing this post.  Rather, the real reason is that I'm actually considering buying a couple.  Yeah really! 

Foreign stocks: a glaring hole in my portfolio.  In a perfect world foreign stocks would pay dividends quarterly and not have dividends withheld just like my favorite dividend champions.  Unfortunately such conditions are very rare.  American stocks spoil us with a level of predictability and stability not seen anywhere else (with the exception of Canada).  But there are tons of quality foreign companies such as Nestle, Novartis, and National Grid.  The problem is I simply do not want to be paid only once or twice a year!  I will not accept that.  So I'm left looking at stocks from Canada and a few from the UK.  I currently own TD and EIFZF plus monitor CM, EMRAF, UL, and BP.  So I follow a grand total of six stocks outside the US....  There are a lot more quality companies around the globe than that!

For the price of an ongoing fee I can turn annual and semiannual dividends into a quarterly paying ETF.  Now I spent a few hours looking at various foreign dividend funds and couldn't find a single one where the distribution stream was smooth and predictable.  No matter what I do it's going to be bumpy.  But I can gain exposure to a bunch of great companies I would otherwise not be interested in, avoid the withholding tax (the fund should deal with it), and get that quarterly dividend I require.

I have access to 30 no transaction fee iShare ETFs with my Fidelity brokerage account.  I can buy small lots of $50 or $100 without worrying about commissions.  Anyways one particular fund caught my attention:

iShares Dow Jones International Select Dividend Index Fund (IDV):

• Holdings: 101
• Dividend Yield (ttm): 5.19% (paid quarterly,YAY!)
• Expense Ratio: 0.50%
• P/E: 15.1 / P/B: 2.63 / Beta: 1.49
• Major Holdings: British American Tobacco, Eni, Commonwealth Bank of Australia, Royal Dutch Shell
• Other Holdings: National Grid, Seadrill, Bank of Montreal, Emera, Vodafone
• Countries: 21% Australia, 17% UK, 7% Hong Kong, 6% France, 6% Italy

There are definitely some quality holdings in there, but to be honest I've never heard of 80% of them.  I will consider starting a small position in this fund for income and diversification purposes.  Being able to make purchases with extremely small dollar amounts is a huge plus but comes at the cost of the dreaded expense ratio.