Emerging markets stocks are struggling again this year, but that’s painting with broad strokes. Investors taking the time to conduct further examination will find pleasant surprises in the form of Latin American stocks.
The problem is that supposedly broad emerging markets exchange traded funds aren’t all that diversified, and the bulk of their Latin American equity exposure is sourced via Brazil.
The ALPS Emerging Sector Dogs ETF (NYSEArca: EDOG) is an ideal way with which to solve this problem because the fund more evenly distributes its country allocations, meaning that it has more Latin America exposure than rival broad-based funds. The difference is material, as the ALPS ETF is beating the MSCI Emerging Markets Index by 460 basis points on a year-to-date basis.
“Despite the existing political, economic and social environment, the markets greatly rebounded in Q1. So much so that on March 31, 2022, the flagship indices for Mexico and Peru both reached their all-time highs,” notes S&P Dow Jones Indices.
EDOG allocates 8.23% of its weight to Mexican stocks, which is more than triple the weight assigned to Latin America’s second-largest economy by the MSCI Emerging Markets Index. EDOG also has sector-level advantages.
“Based on the S&P Latin America BMI sectors, only Information Technology did poorly, losing 5.2% in Q1; all others had strong positive returns,” adds S&P Dow Jones. “Financials (35.0%) and Materials (32.5%) were the largest sectors by weight, and in Q1, they made the largest contribution to the total return of the broad regional index.”
EDOG allocates about 9% of its weight to tech stocks, but the bulk of those names aren’t Latin American stocks. The fund devotes more than 19% of its roster to the materials and financial services sectors. EDOG has more Latin American representation from those sectors.
As for Brazil, Latin America’s largest economy is leading the way in terms of the region’s equity market performance. That’s good news for EDOG investors because Brazil is the ETF’s biggest country exposure at 11.24%.
Brazil’s stock market is soaring due in large part to surging commodities prices. On that note, EDOG allocates a combined 29% of its weight to commodities-rich Brazil, Chile, and Mexico.
Other emerging markets dividend ETFs include the ProShares MSCI Emerging Markets Dividend Growers ETF (CBOE: EMDV), the iShares Emerging Markets Dividend ETF (DVYE), and the WisdomTree Emerging Markets Equity Income Fund (NYSEArca: DEM).
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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.