The ALPS Emerging Sector Dividend Dogs ETF (EDOG) gained 0.45% in August, propelled by high energy prices continuing to sustain cyclical energy company profit margins.
Broad emerging markets paused their run in August after rebounding in July, weighing sustained inflation and rising fears of a global recession, ALPS wrote in a recent insight. Global growth expectations point to below-average growth for 2023, dependent on the resolution of the war in Ukraine and the path of future interest rates. With commodity prices elevated and inflation pressuring labor and material costs, value-oriented sectors including energy, materials, and -industrials are well-positioned to continue their run in emerging markets compared to their growth-oriented counterparts, according to ALPS.
EDOG slightly underperformed in broad emerging markets in August, as measured by the Morningstar Emerging Markets Index (MEMMN), which returned 1.01% compared to EDOG’s 0.45%. EDOG’s deep value exposure to cyclical companies has sustained positive fundamentals in 2022, benefiting from higher energy and commodity prices that have negatively affected growth-oriented emerging market companies.
EDOG applies the “Dogs of the Dow Theory” on a sector-by-sector basis, using the S-Network Emerging Markets Index as its starting universe of eligible securities. The strategy provides high dividend exposure across all sectors of the market by selecting the five highest yielding securities in 10 of the 11 GICS sectors; the real estate sector is excluded. The country representation is capped at five eligible securities per country. The fund is equally weighting at the stock and sector level and may provide diversification while avoiding sector biases, according to ALPS.
EDOG has a 10.40% overweight to Turkey, a 10.06% overweight to Chile, and a 6.33% to South Africa relative to the Morningstar Emerging Markets Index, as of August 31.
Other emerging markets ETFs to consider include the BNY Mellon Emerging Markets Equity ETF (BKEM) and the Invesco BLDRS Emerging Markets 40 ADR Index Fund (ADRE).
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