Dividends and value are two avenues for reducing some of the turbulence associated with emerging markets investing. The ALPS Emerging Sector Dogs ETF (NYSEArca: EDOG) serves up both of those factors.
EDOG tracks the performance of the S-Network Emerging Sector Dividend Dogs Index. The index is comprised of the highest paying stocks, or “Dividend Dogs,” from the S-Network Emerging Markets Index, which holds large cap, emerging market stocks. The Dividend Dogs include the five stocks in each of the ten Global Industry Classification Standard sectors that make up the S-Network Emerging Markets.
“The road to successful investing in emerging markets is littered with potholes, speed bumps, and tolls. The risks facing investors in these markets are many and acute,” notes Morningstar analyst Daniel Sotiroff. “Over the 10 years through March 2021, the standard deviation of the MSCI Emerging Markets Index was 27% higher than the MSCI World Index–a proxy for global developed-markets stocks.”
Take the Edge Off Volatility with ‘EDOG’
EDOG has a value tilt, which could be a favorable at a time when that factor is roaring higher, including with ex-U.S. equities. EDOG’s value purview can be a plus for long-term investors.
“Emerging-markets economies are more fickle than their developed-markets counterparts in the United States, Western Europe, and Japan. That contributes to the volatility of their stock markets and can lead to the closure or even collapse of entire markets. Indeed, country membership turns over more frequently in the emerging-markets universe than in the developed-markets universe, leading to higher portfolio turnover,” adds Sotiroff.
If the Federal Reserve holds fast to its commitment to keep rates low, the dollar will grow weaker. This will help translate into more strength for local currencies in emerging markets.
Still, investors should be careful of embracing emerging markets equities simply because the asset class is attractively valued.
In emerging markets, low volatility does not “completely avoid all of the perils in these markets, but it has taken some of the edge off and should continue to do so, setting it up for market-beating risk-adjusted returns over the long haul,” according to Morningstar.
Other emerging markets dividend ETFs include the ProShares MSCI Emerging Markets Dividend Growers ETF (CBOE: EMDV), iShares Emerging Markets Dividend ETF (DVYE), and 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.