22 KIPLINGER’S PERSONAL FINANCE^ 03/2020INVESTING
company. It’s right up there with
smart executives at the helm and a
solid business niche in its industry.
Double down on high quality with
ISHARES EDGE MSCI USA QUALITY FACTOR ETF
(Q UA L , 0.15 %, $ 101). The ETF invests in a di-
versified group of 125 large and midsize
firms that have low debt, stable annual
earnings growth and high return on
equity. Johnson & Johnson, Pepsico
and Facebook are among its top hold-
ings. BlackRock has an international-
stock version of this ETF, ISHARES EDGE
MSCI INTERNATIONAL QUALITY FACTOR ETF
(IQLT, 0.30%, $32), that held up better than
the MSCI ACWI ex USA foreign-stock
index during the 2018 correction. The
ETF yields 2.31%, and top holdings in-
clude Nestlé and drug company Roche
Holding.Go abroad. Companies in the rest of
the world are less indebted, on average,
than firms in the U.S. Even better, if
you focus on the best players overseas,
you might beat the U.S. stock market,
says Capital Group’s Robert Lovelace.
“A majority of the best-performing
stocks over the past 10 years were
companies based outside the U.S.”
At FIDELITY INTERNATIONAL GROWTH
(FIGFX, 0.99%), manager Jed Weiss
focuses on firms with a competitive
edge. If a company can raise prices for
its goods without a drop-off in demand,
Weiss is happy. That’s a trait that can
buoy a business in rough times.
WISDOMTREE GLOBAL EX-U.S. QUALITY
DIVIDEND GROWTH (DNL, 0.58%, $66) invests
in 300 dividend-paying companies in
developed and emerging foreign coun-
tries. The fund yields 2.6%. The firms
must meet certain quality and growth
bars, including return on equity and
return on assets (another profitability
measure), to be included in the fund.
As a result, the portfolio has an aver-
age debt-to-capital ratio of 29—less
than the 34 ratio of the MSCI ACWI
ex USA index (and 44 for the S&P
500). The U.K., Japan and Denmark
are its biggest country bets. ■
YOU CAN CONTACT THE AUTHOR AT NELLIE_HUANG@
KIPLINGER.COM.above-average yields. The fund yields
2.70%. SCHWAB U.S. DIVIDEND EQUITY ETF
(SCHD, 0.06%, $58) isn’t actively managed,
but the companies in the index it tracks
must meet several criteria. Firms must
have paid dividends for at least 10 con-
secutive years, for starters. And only
firms with the best relative financial
strength, marked by their ratio of cash
f low to total debt and their return on
equity (a profitability measure), make
the final cut. The ETF yields 3.11%.
VA NG UA R D D I V I D E ND G R OWT H (VDIGX, 0.22%)
yields just 1.84%, but manager Donald
Kilbride focuses on cash-rich, low-
debt firms that can hike dividends
over time. Morningstar analyst Alec
Lucas says the fund is “a standout
when markets tremble.”Add a dash of high quality. A strong bal-
ance sheet—one that’s low in debt—is
a key characteristic of a high-qualityConsider two auto makers, Ford Mo-
tor and Daimler AG. Both offer similar
dividend yields: Ford, 6.37%; Daimler,
6.46%. But Ford has a triple-B credit
rating and Daimler is rated single-A.
Moreover, Daimler generates enough
in annual operating income to pay its
yearly interest expenses 13 times over.
Ford throws off enough to pay three
years’ worth of interest payments. “In-
vestors can jump to a conclusion that
two companies in a similar industry
with similar yields are the same,” says
Capital Group’s Hanks. “But one has
more risk than the other, and its divi-
dend could get cut. You might want to
ask yourself, Am I getting paid for the
risk I’m taking?”Choose a dividend pro. At VA NG UA R D
EQUITY-INCOME (VEIPX, 0.27%), two firms
run the fund but work separately, hom-
ing in on large, high-quality firms withHUNKER DOWN WITH THESE FUNDS
Bomb SheltersA debt crisis isn’t imminent yet, but income investors can shore up their portfolio with a shift
to funds that favor high-quality bonds and stocks.BOND FUNDS SymbolExpense
ratio Yield1-year
return
Baird Aggregate Bond Inv BAGSX 0.55% 2.1% 9.2%
iShares Aaa - A Rated Corporate Bond ETF QLTA 0.15 2.4 12.5
iShares J.P. Morgan EM Local Currency Bd ETF LEMB 0.30 5.5 6.7
iShares J.P. Morgan USD Em Mkts Bd ETF EMB 0.39 4.3 15.6
Vanguard Mortgage-Backed Secs ETF VMBS 0.05 2.6 6.2
Vanguard Mortgage-Backed Secs Idx Adm VMBSX 0.07 2.5 6.2
STOCK FUNDS
Fidelity International Growth FIGFX 0.99% N/A 34.0%
iShares Edge MSCI Intl Quality Factor ETF IQLT 0.30 2.3% 27.8
iShares Edge MSCI USA Quality Factor ETF QUAL 0.15 1.7 34.1
Schwab U.S. Dividend Equity ETF SCHD 0.06 3.1 27.3
Vanguard Dividend Growth Inv VDIGX 0.22 1.8 31.0
Vanguard Equity-Income Inv VEIPX 0.27 2.7 25.2
WisdomTree Global ex-US Qual Div Gr ETF DNL 0.58 2.6 35.4
INDEXES
S&P 500-STOCK INDEX 1.8% 31.5%
MSCI ACWI EX USA INDEX 3.0 21.5
BLOOMBERG BARCLAYS U.S. AGGREGATE BOND INDEX 2.3 8.7
As of December 31, 2019. N/A=not available. SOURCE: Morningstar, fund companies.