Due in large part to the coronavirus pandemic, emerging markets equities are slumping in 2020, but that scenario could rapidly reverse. While investors wait for that to happen, they should be compensated for that risk and the ProShares MSCI Emerging Markets Dividend Growers ETF (CBOE: EMDV) delivers that compensation.
EMDV follows the MSCI Emerging Markets Dividend Masters Index, which targets MSCI Emerging Market components that have increased dividend payments each year for at least seven consecutive years.
Given the way emerging markets (EM) were roiled by the coronavirus outbreak, it might seem like a sound idea to stay away from them as much as possible. Like a dividend fund with quality hallmarks, EMDV can take some of the edges off emerging markets investing.
Emerging markets have always given investors another look at the global growth landscape, particularly since they could be in different economic phases—for example, the U.S. could be reaching a peak while an emerging market country could be in a growth acceleration phase. Adding dividends to the mix can reduce some of the volatility associated with assets in developing economies.
Opportunity With EMDV
EMDV allocates over 35% of its weight to Chinese stocks, a trait that’s relevant not only because of that economy’s heft and dividend prominence, but because it may prove to be one of the best-performing developing economies this year.
“The COVID-19 shock has fueled the biggest capital outflows from emerging markets on record in the first quarter, and the situation is unlikely to improve for the rest of the year,” reports CNBC, citing the Institute of International Finance.
Emerging markets dividend growth has outpaced developed world payout growth over the past decade and market observers expect that trend to continue, but some advisors and investors gloss over emerging markets dividend ETFs.
Companies that grew dividends outperformed companies that didn’t. Companies that consistently grow their dividends tend to be high-quality with strong growth potential. These types of companies were able to withstand periods of market turmoil and still deliver strong returns with lower volatility.
Importantly, companies in the MSCI Emerging Markets Dividend Masters Index – EMDV’s underlying benchmark – have a lengthy history of outperforming those in the MSCI Emerging Markets Index. EMDV has a distribution yield of 3.02%, according to issuer data.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.