Emerging market stocks have been underperforming the broader markets so far this year, but how long will this last? Exchange traded funds linked to the developing markets are starting to gain momentum, testing their short-term moving averages.
Dividend-focused emerging market ETFs are on the rise, with the iShares Emerging Markets Dividend Index Fund (NYSEArca: DVYE) and the WisdomTree Emerging Markets Equity Income ETF (NYSEARca: DEM) both inching toward their 50-day simple moving averages. [iShares: How to Access Emerging Market Growth]
Emerging market equities have been lagging behind U.S. stocks so far this year. The S&P 500 Index has increased 11.4% year-to-date, compared to the 6.3% fall in DVYE and 4.1% decline in DEM. [Low-Volatility ETFs for Emerging Markets]
“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,” writes Morningstar analyst Patricia Oey.
The iShares DVYE follows the performance of 100 leading dividend-paying emerging market stocks, weighted by dividend yield. DVYE has a 0.49% expense ratio and a 3.82% 12-month yield.
Sector allocations include financials 18.4%, basic materials 17.9%, utilities 14.8%, telecom services 11.4%, consumer goods 10.9%, industrials 10.5%, technology 9.4%, consumer staples 3.2% and oil & Gas 3.0%.
Country allocations include Taiwan 26.8%, Brazil 15.8%, Turkey 8.5%, South Africa 8.4%, China 7.2%, Thailand 6.6%, Malaysia 6.5%, Indonesia 3.8%, Czech Republic 3.1% and South Korea 3.0%.
Next page: WisdomTree’s emerging market dividend ETF
The WisdomTree DEM screens for firms that paid out at least $5 million in regular cash dividends over the past year, have met market-cap and liquidity requirements, and are ranked by dividend yield. DEM has a 0.63% expense ratio and a 3.31% 12-month yield.
“Our pick for a dividend-oriented exposure is WisdomTree Emerging Markets Equity Income DEM, which charges 0.63%,” according to Morningstar analyst Patrcia Oey. “While DVYE weighs its holdings by dividend yield, DEM weighs by total dividends, which results in larger-cap tilt.”
Sector allocations include financials 27.6%, energy 17.2%, materials 17.2%, telecom services 16.4%, information tech 7.4%, utilities 5.4%, consumer staples 3.1%, industrials 2.9% and consumer discretionary 2.6.
Country allocations include Taiwan 20.2%, China 16.1%, Russia 12.1%, Brazil 11.9%, South Africa 7.2%, Thailand 6.6%, Malaysia 4.8%, Turkey 4.5%, Poland 3.5%, South Korea 2.9%, Mexico 2.7%, Indonesia 2.0%, Czech Republic 1.9%, Chile 1.8%, Philippines 1.3%, Argentina 0.2% and Hungary 0.2%.
Other dividend-focused emerging market ETFs have been doing better. The EGShares Low Volatility EM Dividend ETF (NYSEArca: HILO) has remained relatively flat so far this year, and the WisdomTree Emerging Markets SmallCap Dividend Fund (NYSEArca: DGS) has increased 5.0% year-to-date.
iShares Emerging Markets Dividend Index Fund
For more information on the emerging markets, visit our emerging markets category.
Max Chen contributed to this article.