Animal Spirits Podcast Summary
Episode: "Talk Your Book: Where to Find Higher Dividend Yields"
Release Date: June 9, 2025
Hosts: Michael Batnick and Ben Carlson
Guest: Todd Matthias, Head of US Product Strategy and Development at Franklin Templeton Investments

Introduction to International Investing and Market Dynamics

Ben Carlson kicks off the discussion by reminiscing about the mid-2000s enthusiasm for emerging markets, specifically the BRICs (Brazil, Russia, India, China). He highlights the prevailing belief that global economic growth would be driven by these nations' expanding populations and burgeoning middle classes.

Ben Carlson:
"When I entered the Internet, the Investing World Talking 2005 ish... emerging markets were on fire that whole decade."
[00:47]

US vs. International Market Performance

The conversation delves into the historical outperformance of U.S. markets compared to international counterparts. Ben points out that despite emerging markets suffering significant downturns during the 2008 financial crisis (with some falling by up to 67%), there was optimism about their long-term growth prospects.

Ben Carlson:
"The U.S. has outperformed developed international markets by 487% cumulatively over the past 15 years."
[05:57]

Todd Matthias explains that the U.S. economy is heavily weighted towards high-quality tech and communication services companies, which have robust cash flows and reinvest heavily in growth. In contrast, international markets are more diversified across sectors like healthcare, manufacturing, and financials, offering different structures and potential diversification benefits.

Todd Matthias:
"The debate is one going to outperform the other... Does it actually lead to a catalyst for diversification? The only free lunch we know in investing."
[04:33]

Valuation Premiums and Market Sentiment

A significant portion of the discussion centers around the valuation premiums of U.S. stocks compared to international ones. Ben and Todd explore whether higher U.S. valuations are justified by higher quality or if they already factor in expected growth, creating a pull between investing domestically versus internationally.

Ben Carlson:
"There's a push and pull between US international. And I'm just curious where you stand on that side of the debate."
[03:01]

Todd Matthias acknowledges the complexities, noting that while U.S. companies often appear more attractive due to their quality and growth prospects, international equities offer cheaper valuations that could translate into better equity performance, especially when considering diversification.

The Role of Foreign Investors in the U.S. Market

The episode examines the influence of foreign investment on U.S. stocks. Ben Carlson raises concerns about the dependency on foreign investors, especially as foreign ownership constitutes about 20-25% of the U.S. stock market.

Ben Carlson:
"Foreign investors make up something like 20% of the US stock market now. So it's a pretty big slug."
[16:01]

Todd Matthias concurs, emphasizing that any reversal in foreign investment patterns—such as a shift towards investing more domestically due to geopolitical tensions—could pose risks to U.S. stock performance.

Todd Matthias:
"You continue to want to see that increase as we are such an impact on the global economy...you can't risk not owning the US kind of right now."
[16:46]

Higher Dividend Yields in International Markets

A focal point of the episode is the exploration of higher dividend yields available in international markets compared to the U.S. Todd Matthias discusses Franklin Templeton’s suite of international dividend products, such as the Franklin International Core Dividend Tilt Index (DIVY), which offers exposure to higher-yielding international stocks.

Todd Matthias:
"One often overlooked area of or benefit potential benefit of investing internationally is they do have significantly higher dividend yields than we do."
[17:57]

Ben Carlson expresses surprise at the high dividend yields from international automakers, noting that U.S. counterparts have struggled with dividend cuts.

Ben Carlson:
"Why is it that the automakers pay such high dividends, that surprises me. Is that just because the US automakers have been in trouble and have cut theirs in recent years?"
[20:05]

Todd Matthias explains that international companies, especially in Europe and Japan, often maintain higher and more stable dividend payouts due to cultural expectations and regulatory environments.

Todd Matthias:
"If there's an absence of one factor, you're going to be seeing a gravitation towards another factor...value bias to them because of the dividend yield."
[22:58]

Factor Investing and Performance Cyclicality

The hosts delve into factor investing, particularly the performance of value, quality, and dividend factors in international markets versus the U.S. Todd Matthias notes that while these factors have underperformed in the U.S. recently, they have shown resilience and outperformance internationally.

Ben Carlson:
"A lot of the studies have shown that actually those quality, those factors have been working just fine internationally."
[21:40]

Todd Matthias emphasizes the cyclical nature of factor performance and how international markets present opportunities for value investing, especially in regions where quality metrics may be less dominant.

Advisor Preferences and Strategies for International Exposure

The discussion shifts to how financial advisors approach international diversification. Todd Matthias observes that many advisors hold minimal international exposure, often confined to household names and high-dividend stocks to mitigate perceived risks.

Todd Matthias:
"When you talk to FAs there's some really interesting opinions out there...small cap or I'm going to go to small cap. My next step is international on the risk spectrum."
[08:40]

He also highlights the trend among advisors and institutional clients to selectively invest in specific countries like India over China due to geopolitical uncertainties and growth prospects.

Todd Matthias:
"India has been a great economy and a great investment over the past five years... China has uncertainties, potential tail risks."
[26:24]

Specialized International Dividend Products

Todd Matthias showcases Franklin Templeton’s innovative ETF products designed to meet diverse investor needs. Products like DIVY and XIDV offer tailored exposure to international dividends with controlled risk profiles, making them suitable for both growth and income-focused investors.

Todd Matthias:
"We developed divvy, which is a core dividend tilt...XIDV, which is our dividend multiplier product, has a 7% yield, long only equity."
[18:24]

He underscores the importance of constructing these portfolios with risk models to ensure predictability and alignment with investors' long-term goals.

Geographic and Sector Preferences in International Investing

The conversation explores how advisors balance geographic and sector allocations within international portfolios. Todd Matthias notes that while some advisors prefer broad international exposure, others strategically allocate based on regional growth prospects and geopolitical stability.

Todd Matthias:
"It's a bit of both...planning to increase and then it's somewhat idiosyncratic."
[24:49]

He points to specific regions like India, which offers strong growth, versus China, which presents more geopolitical risks, guiding advisors to make informed tactical decisions.

Conclusion and Resources

The episode concludes with Todd Matthias directing listeners to Franklin Templeton’s resources for further information on their international investment products.

Todd Matthias:
"Franklintempleton.com A lot of great insights there ways you can learn about our suite of ETFs as well as what's going on in the economy."
[30:12]

Ben Carlson encourages listeners to explore Franklin Templeton’s strategies and reach out for more information.

Ben Carlson:
"Remember, check out franklintempleton.com to learn more about all the strategies we talked about today and email us at animalspiritscompoundnews.com."
[30:30]

Key Takeaways

• U.S. vs. International Performance: Historically, the U.S. market has outperformed international markets, but international diversification offers higher dividend yields and potential risk mitigation.

• Valuation and Quality: While U.S. companies often command higher valuations due to superior quality and growth prospects, international markets present opportunities with lower valuations and different sector exposures.

• Foreign Investment Influence: The U.S. stock market's reliance on foreign investors is significant, making it vulnerable to shifts in global investment patterns.

• Dividend Strategies: International markets, particularly in Europe and Japan, offer higher and more stable dividend yields compared to the U.S., making them attractive for income-focused investors.

• Advisor Strategies: Financial advisors are increasingly selective with international investments, favoring specific regions like India over China due to growth potential and geopolitical considerations.

• Product Innovation: Franklin Templeton provides specialized ETFs like DIVY and XIDV to cater to diverse investor needs, focusing on controlled risk and predictable outcomes.

Notable Quotes

• Ben Carlson:
  "The U.S. has outperformed developed international markets by 487% cumulatively over the past 15 years."
  [05:57]

• Todd Matthias:
  "The only free lunch we know in investing."
  [05:57]

• Ben Carlson:
  "Why is it that the automakers pay such high dividends, that surprises me."
  [20:05]

• Todd Matthias:
  "If there's an absence of one factor, you're going to be seeing a gravitation towards another factor."
  [22:58]

For more insights and detailed strategies, visit Franklin Templeton and stay updated with the latest episodes of the Animal Spirits Podcast.