In the current market environment, it would not be surprising to hear that investors are apprehensive about embracing emerging markets equities. Thanks in large part to the US/China trade flap, the widely followed MSCI Emerging Markets Index is lower by 7.71% month-to-date and resides more than 14% below its 52-week high.
Dividends can ease investors’ forays into emerging markets when volatility creeps higher. The ProShares MSCI Emerging Markets Dividend Growers ETF (CBOE: EMDV) is a solid exchange traded fund (ETF) to consider. This month, EMDV is outperforming the MSCI Emerging Markets Index by 230 basis points.
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. EMDV has slightly less exposure to China than traditional emerging markets ETFs and higher exposure to some developing economies that are not as sensitive to the US/China trade war.
Examining EMDV ETF
In dollar terms, China is the largest emerging markets dividend payer and one of the emerging world’s most reliable sources of dividend growth. Many emerging markets dividend exchange traded funds (ETFs), including the aforementioned EMDV, reflect as much. EMDV allocates nearly 30% of its weight to Chinese dividend stocks. However, EMDV has ample exposure to other compelling emerging markets.
“The most obvious alternate destination to China is India, whose 7% growth is domestically driven and where economic reforms are expected to survive an election that ends next week,” reports Craig Mellow for Barron’s. “Privately owned banks like HDFC (HDFC.India) and Kotak Mahindra (KMB.India) have been investors’ favorites as they eat state competitors’ lunch and benefit from Prime Minister Narendra Modi’s war on cash.”
At a weight of 18.16%, India is EMDV’s third-largest country weight. EMDV’s India weight is nearly double that of the MSCI Emerging Markets Index.
EMDV’s dividend yield is below that of the MSCI Emerging Markets Index, but is more of an advantage that a drawback.
Dividend growth rather than high yield can be a potent, less risky long-term income strategy. Company stocks that issue high dividend yields can be masking their distressed books or may not be sustainable and are heading for dividend cuts.
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