Well-documented have been the struggles of emerging markets exchange traded funds this year, but the reality is, these ETFs have provided little to write home about for long-term investors in recent years.
Over the past three years, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) are each off a bit more than 8%. The silver lining is that investors are being compensated for being involved with these ETFs and others in the form of rising dividends.
Global dividend reached $1.03 trillion last year with $1 of every $7 of that total coming courtesy of developing world companies, according to Henderson Global Investors. Emerging markets payouts have jumped almost 110% over the past five years, Reuters reported.
Ongoing growth in emerging markets dividends could and should highlight the advantages of ETFs such as the WisdomTree Emerging Markets Equity Income Fund (NYSEArca: DEM), one of the gold standards among emerging markets dividend ETFs. Reinvested dividends have made a major difference for long investors in DEM and rival funds.
Over the past three years, DEM is down 17.4%, but just 7% when accounting for reinvested dividends. Russia and China combine for 36% of DEM’s weight, presenting something of a dividend growth advantage for investors. China is the largest dividend payer in dollar terms in the WisdomTree Emerging Markets Equity Income Index while Russia is the fastest growing dividend payer in the index. [Russia Looks to Assert Dividend Footprint]
DEM’s dividend is growing. The ETF paid about $1.84 a share in 2010, but close to $2.05 per share last year, according to issuer data.
The iShares Emerging Markets Dividend ETF (NYSEArca: DVYE) and the SPDR S&P Emerging Markets Dividend ETF (NYSEArca: EDIV) are among DEM’s rivals. The $184.5 million DVYE has a trailing 12-month yield of almost 5% and allocates a combined 41.3% of its weight to Taiwan and Brazil, two emerging markets with favorable dividend policies.
The $443 million EDIV has a trailing 12-month yield of 5.47% and is a bit more diverse at the country level as Taiwan, China and Brazil combine for about 45% of fund’s geographic weight. Importantly, neither EDIV nor DVYE offer much in the way of exposure to South Korea, a dud among emerging markets dividend destinations. [South Korea is no Dividend Destination]
EDIV’s dividend was close to $2 per share last year, according to State Street data.
In addition to the aforementioned funds, there is a new breed of emerging markets dividend ETFs that emphasize payout growth. That group includes the EGShares Emerging Markets Dividend Growth ETF (NYSEArca: EMDG).