In the realm of international investment funds, a notable disparity in performance has emerged between two prominent players: Fidelity's International High Dividend ETF (FIDI) and Vanguard's International Dividend Appreciation ETF (VIGI). While VIGI, a Vanguard offering, has garnered a loyal following for its focus on global companies with a history of increasing dividends, a closer examination of the five-year returns reveals FIDI has quietly achieved significantly higher gains, suggesting its strategy may offer a more compelling proposition for certain investors.
Vanguard's International Dividend Appreciation ETF (VIGI), designed for investors who appreciate Vanguard's domestic dividend growth methodology and seek to apply it internationally, invests in non-U.S. companies with a consistent track record of dividend increases. This approach appeals to long-term investors prioritizing business stability over immediate high yields. However, over a five-year period, VIGI yielded a total return of 27.91% with reinvested distributions. In stark contrast, the Fidelity International High Dividend ETF (FIDI) delivered an impressive 75.75% return during the same timeframe, which began on October 22, 2021. This substantial difference amounts to a 47.84 percentage point advantage for FIDI, transforming a $100,000 initial investment into $127,910 with VIGI, versus a more robust $175,750 with FIDI.
The superior performance of Fidelity’s fund extends beyond the five-year horizon, demonstrating its strength across shorter periods as well. Over the past year, FIDI generated a return of 22.8%, significantly surpassing VIGI’s 10.88%, marking an 11.92 percentage point lead. Furthermore, on a year-to-date basis, FIDI recorded a 15.83% increase compared to VIGI's 9.44%, indicating a 6.39 percentage point edge. This consistent outperformance across long-term, medium-term, and recent windows suggests that FIDI's success is not merely a transient lucky streak but rather a reflection of its underlying investment philosophy. Although VIGI did show a slight advantage over FIDI in the most recent month, with gains of 3.19% against FIDI's 2.44%, this short-term deviation does not significantly alter the broader trend of FIDI's sustained lead.
The divergent performance of these ETFs can largely be attributed to their distinct dividend investment strategies. VIGI aims to mirror the S&P Global Ex-U.S. Dividend Growers Index, which specifically targets non-U.S. companies that have consistently raised their dividends, intentionally excluding the top 25% of eligible stocks with the highest current yields. This approach prioritizes a history of dividend growth over the size of present payouts. Conversely, FIDI, which tracks the Fidelity International High Dividend Index, focuses on large- and mid-capitalization developed international companies that offer high current dividends and are expected to maintain and grow these payouts. Thus, FIDI places greater emphasis on immediate dividend income. For investors, choosing between these funds necessitates a deliberate decision about their preferred dividend style.
Despite FIDI's strong performance relative to VIGI, it is noteworthy that two other high-dividend focused rivals achieved even greater returns over the identical five-year period. The Vanguard International High Dividend Yield ETF (VYMI) yielded an 85.63% return, surpassing FIDI by 9.88 percentage points. Similarly, the iShares International Select Dividend ETF (IDV) recorded an 82.99% return, finishing 7.24 percentage points ahead of FIDI. This competitive landscape suggests that while FIDI is a strong contender, investors focused on international high-dividend stocks might also consider VYMI and IDV as potentially more rewarding options.
Investing in international funds involves an additional layer of complexity: currency fluctuations. The overall return from such investments is influenced not only by the performance of the underlying companies but also by the exchange rate between their local currencies and the U.S. dollar. A strengthening foreign currency against the dollar can enhance returns, even if local share prices remain stable. Conversely, a stronger dollar can diminish returns. This currency dynamic affects all international funds, including VIGI, FIDI, VYMI, and IDV, introducing an element of variability to their performance over any given period.
For investors considering a shift between these funds, particularly in a taxable account, potential tax implications must be considered. Selling a fund like VIGI at a profit in a taxable account would trigger capital gains taxes, though these are typically levied at lower long-term rates if the shares have been held for over a year. In tax-advantaged accounts such as an IRA or 401(k), such a switch does not incur immediate tax consequences. Some investors opt to retain their existing positions and instead channel new contributions or reinvested dividends into a different fund, gradually rebalancing their portfolio without immediate tax liabilities.
Ultimately, the decision between VIGI and FIDI, or other international dividend ETFs, should align with an investor's specific financial goals. The five-year, one-year, and year-to-date performance data clearly favors the high-dividend strategy for those seeking robust total returns or income from international equities. A thorough comparison of FIDI, VYMI, and IDV is advisable before making a commitment. However, if an investor's primary objective is to specifically target dividend growers while consciously accepting potentially lower trailing returns, VIGI remains a suitable choice, fulfilling its intended purpose within that particular investment framework.
