Emerging markets stocks are finally showing signs of life and despite cuts reminiscent of their U.S. counterparts, there’s still a dividend case for developing world equities, which spotlights the ProShares MSCI Emerging Markets Dividend Growers ETF (CBOE: EMDV).
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.
“Emerging markets are often touted as a great place to invest for fast growth, but the potential rewards come with greater risk and the region has not been immune to the Covid-19 sell-off,” according to Morningstar. “A number of managers are still positive on the prospects for these developing economies though.”
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.
Examining EMDV
“While the mania could last longer and go further than fundamentals may suggest, Arthur Budaghyan, BCA Research’s Chief Emerging Markets wrote in a client note Thursday that a weaker than expected global recovery and rising tensions between the U.S. and China pose two big risks that will continue to weigh on emerging markets ‘after this recent mania phase runs out steam,’” reports Reshema Kapadia for Barron’s.
Fortunately, dividends, particularly those with dependable track records of growth, can stem some of the volatility that could accompany an emerging markets pullback.
Another perk with EMDV is that it’s not heavily allocated to commodities-exporting countries or the related sectors. For example, China and India combine for over 49% of the fund’s geographic weight while the ETF has no exposure to the energy sector and devotes just over 4% of its roster to materials names.
Additionally, emerging markets central banks are responding to the coronavirus pandemic with a monetary stimulus of their own, including a spate of interest rate cuts that are depressing yields on some risky bonds. All that points to EMDV’s 2.80% dividend yield looking more attractive in the current environment.
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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.