Emerging Market Dividend ETFs Grab Market Share

March 12th at 6:00am by Tom Lydon

Emerging markets and dividends in one exchange traded fund is a trend that is catching on with investors, and providers alike. The higher growth potential that emerging economies present, plus an income stream is a combination that is showing marked interest.

“Emerging markets investments should be a part of any diversified portfolio due to their low correlation with the developed markets assets as also their higher growth potential. The IMF projects that the emerging economies will grow 5.4% in 2012, versus 1.2% growth for the developed economies. Further the emerging markets companies often offer a higher rate of dividend yield compared with the domestic companies,” Neena Mishra wrote for Zacks. [Emerging Market Dividend ETFs]

Emerging market ETFs have attracted about $14.5 billion in 2012 so far, the most ever recorded in the first two months of the year, according to BlackRock data. The WisdomTree Emerging Markets Equity Income Fund (NYSEArca: DEM) has garnered about $820 million in 2012, putting it in ninth place for the fastest growing ETF this year, reports Chris Flood for Financial Times.

DEM is the oldest emerging market dividend ETF, which came to market in July 2007, and has about $3.3 billion in assets under management. The success of DEM has attracted plenty of providers to follow suit and create dividend plays based in emerging economies, reports Flood. [ETF Spotlight:Emerging Markets Dividend Fund]

Now that investors are keen on emerging market dividend plays, is the chance of a bubble forming eminent? Nicholas Smithie, UBS emerging market equity strategist, says that valuations for high-yielding dividend stocks are still attractive, and there are no signs of a bubble forming.

“We have found no evidence that the dividend theme has been overplayed and looking ahead, we believe dividend strategies will prove an enduring theme in the emerging markets,” Smithie said. [Best Emerging Market ETFs]

Recent emerging market dividend ETF launches:

  • SPDR S&P Emerging Market Dividend ETF (NYSEArca: EDIV)
  • iShares Dow Jones Emerging Markets Select Dividend ETF (NYSEArca: DVYE)

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.