Stealth Rally for This EM Dividend ETF

Since an early February bottom was put in, a broad swath of emerging markets exchange traded funds have rallied.

Among those funds are plenty of familiar faces, including multi-country and single-country offerings. Some emerging markets dividends ETFs have taken part in this year’s rebound for developing world equities, including a dedicated dividend and low volatility fund: The EGShares Low Volatility Emerging Markets Dividend ETF (NYSEArca: HILO).

Devoted emerging markets investors by now likely know that developing economies are bolstering their dividends, many in an effort to attract more foreign investment. The oft-cited statistic is that last year, emerging markets companies accounted for $1 of every $7 paid in dividends and payouts in developing economies have more than doubled over the past years, according to Henderson Global Investors. [Emerging Markets Dividends Matter]

 

Along those lines, HILO takes an interesting path to delivering emerging markets income to investors. Interesting because, for starters, the ETF tracks the FTSE Emerging All Cap ex Taiwan Low Volatility Dividend Index. As its name implies, that index excludes Taiwan, which is not only one of the lowest beta emerging markets, but also home to one of the emerging world’s more favorable payout policies. [Time for Taiwan]

Alright, so the exclusion of Taiwan, a common theme among many EGShares ETFs, is not the end of the world for HILO. An index yield of 7.3% at the end of the first quarter and a 12% gain for the ETF since the start of February say as much.

However, China, the largest emerging markets dividend payer in dollar terms, is merely HILO’s third-largest country weight at 11.3%. Additionally, because the ETF is also a low volatility fund, HILO’s weight to Russia is just 7%.