Dividend ETFs for Emerging Markets

August 13th at 10:11am by John Spence

Dividend-themed ETFs for emerging markets have yet to achieve the popularity of their cousins that invest in U.S. stocks even though some analysts think the strategy is just as applicable to developing markets.

“Most analysts acknowledge that over any length of time — short-, medium, or long-term — emerging market corporations will grow both their earnings and their dividends at a faster pace than developed world companies. And yet, emerging market dividend funds are not currently competitive with U.S. dividend funds nor the broader emerging market benchmarks,” writes Gary Gordon at ETF Expert.

“So what should one think about the underachievement in the emerging market dividend space? Is it merely a matter of patience? Or are these ETFs tracking unreliable indices with questionable risk-reward benefits?” he wrote. [Dividend ETF’s Strategy Paying Off in Emerging Markets]

Emerging market dividend ETFs include: WisdomTree Emerging Markets Equity Income (NYSEArca: DEM), SPDR S&P Emerging Markets Dividend (NYSEArca: EDIV), EGShares Low Volatility Emerging Markets Dividend ETF (NYSEArca: HILO) and iShares Emerging Markets Dividend Fund (NYSEArca: DVYE). [ETF Chart of the Day: Emerging Market Dividends]

DEM is the largest of the bunch with $4.1 billion in assets under management. The ETF has an SEC 30-day yield of 3%, according to manager WisdomTree.

DEM is up 6.9% year to date, compared with a gain of 8.7% for iShares MSCI Emerging Markets (NYSEArca: EEM).

However, since DEM’s mid-2007 inception, it has earned higher absolute and risk-adjusted returns than the market-weighted MSCI Emerging Markets Index, says Morningstar analyst Patricia Oey.

“This outperformance, combined with DEM’s relatively lower volatility, suggests that a dividend-focused strategy is an attractive way to gain access to the emerging markets,” she wrote in an analyst report on DEM.

“The typical arguments for dividend investing also apply to the emerging markets. Dividends are the largest contributors to total return for investors over the long term and can also signal effective management and healthy fundamentals,” Oey said. “The portfolio is rebalanced once a year on May 31, under which the fund can benefit from a ‘buy low, sell high’ effect for some holdings.”

WisdomTree Emerging Markets Equity

The opinions and forecasts expressed herein are solely those of John Spence, 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.

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