A New ETF For EM Dividend Growth
Emerging markets ETFs were decimated during the second quarter, but some showed signs of perking up last week.
Whether or not last week's upside portends greater upside to come for emerging markets ETFs remains to be seen, but at least investors have a new developing dividend fund which to choose in the form of the EGShares Emerging Markets Dividend Growth (NYSE: EMDG), which debuted Monday.
The EGShares Emerging Markets Dividend Growth ETF is the second dividend fund from issuer EGShares, a firm that focuses exclusively on emerging markets ETFs. The other EGShares dividend ETF is the EGShares Low Volatility Emerging Markets Dividend ETF (NYSE: HILO). Like HILO, EMDG has an annual expense ratio of 0.85 percent.
While it may difficult for some investors to warm to emerging markets at the moment, it cannot be ignored that developing world companies could be strong sources of future dividend growth. After all, many emerging markets firms are highly profitable and not as leveraged as their developed market counterparts.
"Many emerging market-based multinational companies have demonstrated their ability to increase dividends," said Marten Hoekstra, CEO of Emerging Global Advisors in a statement. "We launched EMDG as an investment tool to enable dividend growth investors to implement their investment strategy in emerging markets and diversify dividend yield sources."
EMDG tracks the FTSE Emerging All Cap ex Taiwan Diversified Capped Dividend Growth 50 Index, which takes into account dividend quality and growth, and dividend payout ratios, according to New York-based EGShares.
As the index name implies, EMDG does not include Taiwanese companies among its roster because unlike other ETF and index providers, EGShares does not view South Korea and Taiwan as emerging markets.
As of June 27, China, South Africa, Brazil and Indonesia combined for over 63 percent of EMDG's country weight. The new ETF is home to 50 stocks with Latin American mobile carrier America Movil (NYSE: AMX) the largest holding at weight of 2.7 percent.
Financial services and energy names combine for 37.2 percent of the new ETF's sector weight, but the fund also features double-digit allocations to four other sectors – consumer goods, industrials, utilities and telecom. Malaysia and Russia are EMDG's next largest country weights after Indonesia, according to the ETF's fact sheet.
With Russian President Vladimir Putin pressing his country's state-run enterprises to boost dividends, it is possible the "R" in the BRIC acronym will become a bigger presence in emerging markets dividend ETFs, such as EMDG, in the future.
Emerging markets dividends have contributed about a third of total returns in the asset class for the 12-year period ending March 31, 2013, according to EGShares.
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