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International diversification matters. A U.S.-only portfolio leaves out around 40% of the global stock market and increases the risk of getting stuck in a long stretch of domestic underperformance.
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IDVO is more than a yield product. It combines active international stock picking with selective covered call writing, which has helped it generate a roughly 6% yield without turning into a pure income trap.
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The fee is high, but so far justified. At 0.65%, IDVO is expensive versus index ETFs, but its three-year outperformance suggests the active approach has added real value.
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If your portfolio only holds U.S. stocks, you are excluding around 40% of the global equity market by market capitalization. That means giving up exposure not only to developed international markets like Japan, the U.K., Canada, France, and Switzerland, but also to emerging markets such as China, India, Taiwan, Brazil, and South Korea.
A lot of younger investors have never lived through the lost decade from 1999 to 2009, when U.S. stocks delivered negative inflation-adjusted returns. A full decade is a long time to wait for a portfolio to recover in real terms. One of the easiest ways to reduce that regret is to diversify internationally.
If you are also an income investor, the good news is that there are more options than just plain-vanilla dividend ETFs. Some international income ETFs selectively use covered calls to enhance yield, and the better ones do it without crushing total return. One that stands out to me right now is the Amplify CWP International Enhanced Dividend Income ETF (NYSEMKT: IDVO).
IDVO is an actively managed ETF, both in terms of stock selection and option writing. On the equity side, this is not a fund that simply tracks an index like the MSCI ACWI ex-U.S. Index and calls it a day. Instead, the manager uses that benchmark as a starting point, then looks for high-quality, large-cap international companies.
From there, the manager allocates the portfolio by sector and country with the discretion to overweight or underweight areas they believe will outperform. The resulting portfolio usually holds around 30 to 50 securities and is screened for metrics like earnings, cash flow, return on equity, market cap, and management track record.
The second piece is the covered call strategy, and this is where IDVO separates itself from a lot of lower-quality income ETFs. Many covered call funds simply go long an index and mechanically sell at-the-money calls on all or most of the portfolio. That tends to generate income, but it also caps upside very aggressively.
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