The Definitive Guide to Emerging Markets Dividend ETFs
In this era of artificially low interest rates and the resulting low yields on U.S. Treasuries, dividends have taken on elevated importance. The exchange-traded products industry has met investor demand for dividend products with aplomb, introducing new income-generating funds at a rapid-fire pace over the past several years.
Investors looking for some emerging markets exposure to go along with their dividends are in long. Not only can investors grab high yields and hedge currency risk with a number of emerging markets bond ETFs, there are plenty of noteworthy and anonymous equity-based emerging markets dividend funds that merit consideration.
One piece of advice: Read the fine print because not all emerging markets dividend ETFs are created equal.
WisdomTree Emerging Markets Equity Income Fund (NYSE: DEM)
The WisdomTree Emerging Markets Equity Income Fund, which will turn five-years-old next month, is most often compared to the Vanguard MSCI Emerging Markets ETF (NYSE: VWO) and the iShares MSCI Emerging Markets Index Fund (NYSE: EEM), the two largest emerging markets ETFs. DEM isn’t as large as those two funds, but it did top $3 billion in assets under management earlier this year.
Measuring DEM against VWO is proof positive that dividends matter. In the past five years, DEM is down less than 1% while VWO is off more than 22%. Taiwan, Brazil and South Africa combine for over 52% of DEM’s country weight and the fund gives double-digit allocations to four sectors – financials, telecommunications, technology and utilities. DEM charges 0.63% per year.
WisdomTree Emerging Markets SmallCap Dividend Fund (NYSE: DGS)
The WisdomTree Emerging Markets SmallCap Dividend Fund is the proverbial king of small-cap emerging markets dividend ETFs with a first-to-market advantage that could prove daunting for rivals. Home to almost $883 million in AUM, DGS holds 542 stocks, none receiving a weight of more than 1.07%, and charges 0.63%.
More importantly, the fund shares something in common with many of its large-cap focused brethren: A heavy weight to Taiwan. That country, whose emerging markets status is dubious at best, accounts for almost 26% of DGS’ weight. Another 8.3% goes to South Korea, another country that many experts and traders are reluctant to call an emerging market. Israel checks in at 6% and that country lost its emerging markets status several years ago.
DGS is another prime example of dividends making a difference. The fund is a direct rival to the SPDR S&P Emerging Markets Small Cap ETF (NYSE: EWX), but in the past year, has offered more than 600 basis points in superior returns. Over the past five years, DGS has outperformed EWX by about 900 basis points.
EGShares Low Volatility Emerging Markets Dividend ETF (NYSE: HILO)
HILO has toiled in obscurity since coming to market in August 2011. That means a lot of investors are missing out on an ETF that has a lot to like.
Not only does HILO feature an almost 17% allocation to Thailand, one of the top-performing emerging markets in recent years, the ETF’s index sports a yield of 6.44%. Beyond that, HILO lives up to its low volatility billing as telecommunications and utilities names combine for almost 45% of the fund’s sector weight.
HILO charges 0.85%. Other top country weights include China at 16.7%, Brazil at 16.1% and South Africa at 14.7%.
SPDR S&P Emerging Markets Dividend ETF (NYSE: EDIV)
Since coming to market in February 2011, EDIV has outperformed VWO by about 450 basis points. Today, EDIV is found sporting a yield of almost 5%. Home to 122 stocks and almost $287 million in AUM, EDIV charges 0.59% annually. With a price/earnings ratio of 8.1, EDIV trades at 1.22, according to data on the SPDRs Web site. That means EDIV is cheaper on a valuation than EEM and the broader emerging markets universe.
Financials and technology issues combine for about 48% of EDIV’s weight. At the country level, Taiwan, China and Brazil combine for 48% as well. One interesting note: In the absence of a country-specific fund, EDIV offers one of the largest allocations of any ETF to the Czech Republic at 8.45%.
iShares Emerging Markets Dividend Index Fund (NYSE: DVYE)
The iShares Emerging Markets Dividend Index Fund is the iShares answer to EDIV. DVYE debuted in February, exactly one year to the day after EDIV. The iShares offering is cheaper at 0.49% and a tad more diverse at the sector level as six industry groups – industrials, telecommunications, consumer goods, financial, materials and utilities – receive double-digit allocations.
Taiwan, Brazil and South Africa represent 48% of DVYE’s weight. While the iShares offering may be cheaper in terms of fees, its valuation metrics are pricy compared to EDIV. DVYE trades 14.3 times earnings and 3.4 times book value, according to iShares data. The fund has a 30-day SEC yield of 6.08%.
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