Emerging markets are all the rage right now, and by at least one metric it’s easy to see why – the diversified emerging markets ETF category on YCharts returned 5.7% YTD compared to -15.9% over one year, adding $26.12 billion in YTD flows. With some notable factors driving that appeal, one emerging markets ETF to consider may be the Franklin Emerging Market Core Dividend Tilt Index ETF (DIEM) and its tilt towards dividends, a standout theme from the turn of the year.
What’s behind the spike for emerging markets? Research from Franklin Templeton outlines the case for investing in growing economies overseas: while the world is facing a shaky 2023 to begin with, economies with a focus on domestic demand like India, Brazil, and Indonesia may prove more resilient. Add in a weaker US dollar, receding inflation, and China’s pivot from “zero COVID” rules and the EM case strengthens further, according to Franklin Templeton’s Emerging Market Insights.
Franklin Templeton’s outlook views China as a leader for a recovery in earnings growth in 2023, with a near 15% estimated growth based on consensus expectations. With China’s reopening poised to benefit other emerging markets in East and Southeast Asia, now could be a good time to take a look at an emerging markets ETF.
DIEM, which has outperformed its ETF Database Category Average and Factset Segment Average over three last three months by 860 and 417 basis points respectively according to VettaFi, is one EM equities strategy to watch. The strategy charges 19 basis points to track the Morningstar Emerging Markets Dividend Enhanced Select Index and look for high dividend yield within the EM equities segment.
Dividends remain a factor worth considering given how current income can buoy a portfolio amid ongoing uncertainty, with the index tilting its selection and weighting process towards high dividend paying firms and has a current NAV-based distribution rate of 7.2%, with a 30-Day SEC Yield of 6.5%.
U.S. equities are still facing some big questions, as the prospect of a Fed-induced recession looms for advisors and investors alike. It may then be worth looking to foreign ,emerging markets equities as an alternative, with DIEM a candidate to track in the weeks ahead.
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