Emerging markets have been a disaster for investors this year but ETFs tracking dividend and low-volatility strategies have managed to attract meaningful inflows.
For example, iShares MSCI Emerging Markets Minimum Volatility (NYSEArca: EEMV) has gathered $1.8 billion so far in 2013, according to IndexUniverse flow data. [Some Emerging Market ETFs Actually Bringing in Cash]
The fund appeals to investors who want exposure to notoriously volatile emerging markets with a more conservative approach. The tracking index contains equity securities in global emerging markets that in aggregate have lower volatility.
Volatility is a stock’s tendency to fluctuate in price and is often used to measure risk.
“Because emerging-markets stocks are particularly volatile, a minimum volatility strategy such as that embedded in EEMV can be an attractive choice for passive emerging-markets equity exposure,” says Morningstar senior fund analyst Patricia Oey in a report on the ETF. “Although this is a minimum volatility fund, EEMV is still risky, as emerging-markets equities and currencies can see steep declines when global market volatility spikes.”
Other low-volatility ETFs for emerging markets that have seen net inflows this year include PowerShares S&P Emerging Markets Low Volatility (NYSEArca: EELV) and EGShares Low Volatility Emerging Markets Dividend (NYSEArca: HILO). [Low Volatility ETFs Lead EM Rebound]
Dividend ETFs tracking developing economies have also seen cash move in the door this year.
WisdomTree Emerging Markets Equity Income (NYSEArca: DEM) has gathered $628 million. “DEM holds over 200 high-yielding emerging-markets stocks, weighted by their aggregate annual cash dividends paid, which results in a portfolio fairly different from that of a cap-weighted emerging-markets fund,” says Morningstar’s Oey.
Other dividend funds for emerging markets include WisdomTree Emerging Markets SmallCap Dividend (NYSEArca: DGS), SPDR S&P Emerging Markets Dividend (NYSEArca: EDIV) and iShares Emerging Markets Dividend (NYSEArca: DVYE). All of these ETFs have seen positive flows for 2013.
The largest emerging market ETFs, Vanguard FTSE Emerging Markets (NYSEArca: VWO) and iShares MSCI Emerging Markets (NYSEArca: EEM), have experienced net outflows of $4.5 billion and $8.5 billion, respectively.
Full disclosure: Tom Lydon’s clients own EEM.