Treasury bond yields in the U.S. are back near lows, as the Fed
Taper appears to be off the table for the time being. This is of
course after a string of poor data points which suggest that the
economy might not be as strong as we initially thought.
As a result, many income oriented investors now look for companies
with solid balance sheets that pay stable dividends. But many
domestic dividend paying companies are mature and large, and thus
do not offer the growth potential shown by some newer, smaller
An attractive option for such investors is to pick Emerging Market
Dividend ETFs that combine the opportunity to benefit from the
higher growth potential in the emerging markets with the steady
flow of dividend income (read:
Emerging Markets Dividend ETFs in Focus
Emerging markets under the microscope
Emerging markets currently represent about one-third of global GDP
and their share will continue to grow in the coming years. The
emerging economies have been beaten down this year due to
macroeconomic and political concerns in India, the property market
in China, and persistent inflation and interest rates hike issues
Additionally, most of these nations are commodity-centric economies
that make them highly susceptible to any downtrend in the global
economy. Further, currency declines against the greenback have hit
hard both equity and debt markets in the emerging economies, adding
to their woes.
Despite these weak fundamentals, emerging market ETFs ought to be
part of any investment portfolio. The International Monetary Fund
(IMF) projects that the emerging economies will grow 5.9% in 2013
compared to 1.9% for developed countries and 2% for the U.S. These
nations could be interesting plays in the future as their
valuations are quite favorable at the current levels.
Further, many emerging market companies often offer a higher rate
of dividend yield compared with the domestic companies (read:
Are There Really High-Dividend, Low-Risk ETFs?
). There are now some quality choices in emerging markets that can
provide investors with outsized payouts on a regular basis.
In particular, there are five great choices in this space focusing
on high dividend paying stable companies in emerging markets
WisdomTree Emerging Markets Equity Income Fund (
This fund tracks the WisdomTree Emerging Markets Equity Income
Index, which measures the performance of the highest dividend
yielding stocks selected from the WisdomTree Emerging Markets
With a total of 237 stocks in its basket, the product is widely
spread across individual securities with just 32% of its assets in
the top 10 holdings. The top three firms - China Construction Bank,
Gazprom and Industrial & Commercial Bank - comprise about
16.72% of the combined share in the basket.
The fund is heavy on financials, closely followed by energy,
materials and telecommunication services. In terms of country
allocations, Taiwan is at the top (20%), followed by China (16.3%),
Russia (11.9%) and Brazil (11.4%).
The product appears rich with AUM of about $5.2 billion and average
daily volume of more than 760,000 shares. The ETF charges 63 bps in
fees per year from investors. The fund has lost about 7.5%
year-to-date but has an annual dividend yield of 3.00% versus the
average US dividend yield of about 3.5% (read:
4 Excellent Dividend ETFs for Income and
WisdomTree Emerging Markets SmallCap Dividend Fund (
The fund tracks the WisdomTree Emerging Markets SmallCap Dividend
Index that is primarily composed of small cap stocks selected from
the WisdomTree Emerging Markets Dividend Index. It holds over 500
securities in the basket and offers wide diversification as it puts
little in each security.
None of the securities holds more than 1.25% of the assets,
eliminating company-specific risk. In terms of sector exposure,
financials take the top spot with roughly one-fourth of the assets,
while industrials, consumer discretionary and materials rounded up
to the next three spots in the basket (read:
Banking ETFs: Laggards or Leaders?
The product has amassed about $1.8 billion in AUM and trades in
good volume of more than 215,000 shares per day. It charges a
relatively high annual fee of 64 bps from investors for the
diversity in its portfolio.
In terms of individual countries, Taiwan and Thailand enjoy the
maximum allocation with a share of 22.2% and 11.8%, respectively,
while South Korea, Malaysia and Turkey get single-digit allocation
with a share of 9.4%, 9.4%, and 7.6%, respectively.
DGS has lost less than 3% year-to-date. However its solid yield of
about 3.1% and its growth potential makes this ETF an interesting
SPDR S&P Emerging Markets Dividend ETF (
EDIV tracks S&P Emerging Markets Dividend Opportunities Index,
consisting of dividend paying securities of 100 publicly-traded
companies in emerging markets. The ETF has so far attracted $560
million in assets and trades in volume of roughly 120,000 shares
Holding 124 securities, the fund puts about 33.4% of total assets
in top 10 firms, suggesting moderate concentration across each
security. It is pretty spread well among various sectors with
utilities being the top sector having less than 20% share. The top
three countries are Brazil (22.66%), Taiwan (18.07%) and Turkey
The expense ratio for this fund is 0.59%. The fund had a rough
2013, losing over 12% YTD. However, it does pay out a solid yield
of almost 4.9%, and it is up 5.8% in the past three months (read:
Have You Overlooked These Dividend ETFs?
iShares Emerging Markets Dividend Index Fund (
This ETF, which debuted in Feb 2012, is a relatively new addition
to the Emerging Markets Dividends ETF. The product is designed to
compete with the popular DEM by providing a lower cost alternative
to the investors, while fulfilling a similar investment objective.
The fund seeks to replicate the Dow Jones Emerging Markets Select
Dividend Index. Like DEM, it is also exposed to the financials
(18.31%) followed by basic materials (17.38%) and utilities
(14.27%). The product holds 101 stocks and thus focuses on a
smaller group of companies compared with DEM. The fund puts 22.12%
of assets in the top 10 firms and none of the securities holds more
than 4.2% of the assets.
Taiwan leads the country allocation with 26.8% weight, followed by
Brazil (15.1%) and Turkey (8.9%). The ETF has attracted $139.8
million in AUM while charging 0.49% in annual fees from investors.
It trades in average daily volume of 28,000 shares.
DVYE has delivered negative returns of nearly 10% so far this year,
which is somewhat compensated by an annual dividend yield of 3.9%.
EGShares Low Volatility Emerging Markets Dividend ETF (
HILO is an ideal option for investors seeking to benefit from high
dividend yield and high growth potential of the emerging market
companies while trying to avoid excess volatility associated with
HILO tracks INDXX Emerging Market High Income Low Beta Index,
designed to provide high income and be significantly less volatile
through the utilization of low beta stocks. The index has a beta of
0.94 vs. MSCI EAFE Index. Further, the Index limits concentration
in any position to 5% and country exposure to a maximum of 5
positions in the fund.
In terms of country exposure, South Africa (21.1%), Turkey (17.0%),
Mexico (13.4%) and Malaysia (11.6%) occupy the top spots (read:
Turkey ETF: Still a Strong Play?
). The fund holds 30 securities and has managed assets of $100
million. The ETF is tilted towards the consumer goods (20.8%),
industrials (16.6%) and financials (15.7%) sectors.
The product charges a fee of 85 bps annually and is less liquid
with trading volume of roughly 50,000 shares per day. The ETF is
down 0.7% on the year and yields a solid 5.4% right now.
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WISDMTR-EM EQ I (DEM): ETF Research Reports
WISDMTR-E SC DV (DGS): ETF Research Reports
ISHARS-EM DIV (DVYE): ETF Research Reports
SPDR-SP EM DVD (EDIV): ETF Research Reports
EGS-LO VT EM DV (HILO): ETF Research Reports
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