A Prudent Smart Beta Emerging Markets ETF Idea

Emerging markets stocks are surging this year, but investors should not overlook the opportunity set afforded by emerging markets dividend payers. Several ETFs focus on developing world dividend stocks, but the ALPS Emerging Sector Dogs ETF (NYSEArca: EDOG) is one of the more unique strategies in that group.

EDOG, which debuted over three years ago, 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

EDOG is the third member of the ALPS “dividend dogs” ETF lineup, a group that also includes the ALPS Sector Dividend Dogs ETF (NYSEArca: SDOG) and the ALPS International Sector Dividend Dogs ETF (NYSEArca: IDOG). ALPS identifies the five highest-yielding securities in the 10 GICS sectors on the last trading day of November.

When EDOG is rebalanced, ALPS caps country and sector weights at 10% and individual holdings at 2%. Those strategies help limit single stock, sector and geographic risk.

At the end of the second quarter, EDOG featured exposure to 17 countries. Traditional emerging markets dividend strategies are usually heavily exposed to Brazil, China, Russia and South Africa, or some combination of those four countries. That quartet combined for about 35% of EDOG’s geographic weight at the end of the second quarter, according to issuer data.