IDVO ETF: A unique spin on international income investing

Home bias is real and most people feel much more comfortable investing in their own country than outside it, despite what should be strong potential for diversification by putting money to work internationally. If you are not one of those types of investors and you are looking not only for international exposure but also for enhanced return through an option overlay strategy, then you may want to consider the Amplify CWP International Enhanced Dividend Income ETF (NYSEARCA: IDVO). This ETF aims to give investors the chance to buy into top international companies that pay good dividends and could also grow in value. All while writing covered calls to increase the distribution potential of the overall portfolio.

This is an active fund in the way positions are chosen, with portfolio managers focused on bottom-up fundamental analysis by screening for companies with sustainable earnings and cash flow, top-down sector positioning to help guide where to overweight or underweight, and tactical call writing to improve total return.

A look at holdings

When we look at holdings, we find that no single position represents more than 4.1% of the total portfolio. Pretty well spread overall.

What do these companies do? SAP SE is the world leader in enterprise application software. RELX provides insight-driven decision and analysis tools to professional and business customers around the world. ICICI is a leading Indian bank that plays an important role in financial services. Philip Morris International, known for its high dividend yield, offers investors the chance to invest in the consumer goods sector. And Teva Pharmaceutical Industries Ltd is giving investors a chance to take advantage of healthcare – a sector that often shows strength and room for growth.

Sectoral and global allocation

The sector mix is ​​well spread. Financials (which often form a large part of international portfolios) make up 21% of the fund and hold the largest allocation, followed by Consumer Discretionary and Energy.

In terms of the global mix, Japan and the United Kingdom account for the largest shares, with around 13% each. Overall, though, very well spread across multiple geographies. If you want something well diversified internationally, this definitely fits the bill.

Peer comparison

When you stack IDVO against similar ETFs, a few things make it unique. Unlike many funds that focus on international dividends, IDVO uses a covered call strategy. This impacts its power to create more income. This sheds light on its current payout ratio of 6.03% more than its actual dividend focus. That said, if we pit IDVO against the iShares MSCI EAFE ETF (EFA), which serves as a good benchmark for international investing, we see that IDVO has lagged behind on a total return basis over the past two years. That’s not to say it’s bad, but it’s a reminder of how tough active management can be.

Pros and cons

In addition, this fund allows you to invest in foreign companies that pay dividends, helping you spread your money beyond your home country’s markets. This strategy can increase your earnings and reduce your risk. Another benefit is the covered call method, which generates additional income. This approach can stabilize your returns during market turbulence. In addition, the fund’s focus on high-quality companies with growth potential aligns well with a long-term investment strategy.

But we must also consider the disadvantages. The covered call strategy generates income, but can limit gains during rapid market upswings. Investors should also be aware of the risks associated with international investment, such as currency rate fluctuations and global political challenges. Finally, the fund’s expense ratio of 0.66% exceeds that of some passive ETFs, which could reduce long-term returns.

Conclusion

Overall, I’d say this is an interesting fund worth considering. Covered call strategies have been very popular lately, especially among the retail community. The Amplify CWP International Enhanced Dividend Income ETF is clearly trying to meet some of that demand while giving long-term investors the ability to diversify by focusing on income. The fund’s screening method for dividend-focused companies, along with the covered call approach, offers a special combination of income and growth opportunities. I think it’s an interesting fund overall and worth considering.

Get 50% off your Lead-Lag report

Tired of being a passive investor and ready to take control of your financial future? Introducing the Lead-Lag Report, an award-winning research tool designed to give you a competitive edge.

The Lead-Lag Report is your daily source for identifying risk triggers, uncovering high-yield ideas and gaining valuable macro insights. Stay ahead of the game with crucial information on leaders, laggards and everything in between.

Go from risk-on to risk-off with ease and confidence. Get 50% off for a limited time by visiting https://seekingalpha.com/affiliate_link/leadlag50percentoff.