Market Overview

A Nifty New Emerging Markets ETF

A Nifty New Emerging Markets ETF

Emerging markets equities hit a rough patch following the U.S. presidential election, but for the bulk of this year, stocks in developing economies have been among the world's most resurgent asset classes. That sentiment extends to emerging markets dividend payers as lower volatility developing world stocks.

The ETF And Its Index

Those themes meet in the newly minted Legg Mason Emerging Markets Low Volatility High Dividend ETF (BATS: LVHE), which debuted last week. The latest addition to Legg Mason Inc (NYSE: LM)'s growing ETF lineup tracks the QS Emerging Markets Low Volatility High Dividend Hedged Index.

LVHE's underlying index limits weights to individual securities to 2.5 percent and caps sector allocations at 25 percent. The rookie ETF caps country exposures at 15 percent and regional weights at 50 percent.

“The index screens for profitable companies that have the potential to pay relatively high sustainable dividend yields,” according to Legg Mason. “Yields of the remaining securities are then scored higher or lower based on the attractiveness of their price and earnings volatility.”

Holdings And Strategy

LVHE is currently home to 138 stocks. The new ETF joins other low volatility/high dividend ETFs in Legg Mason's stable, including the successful Legg Mason Low Volatility High Dividend ETF (NASDAQ: LVHD) (BATS: LVHD).

LVHD is “focused on income, risk mitigation and capital appreciation. It is based upon the idea that a stock's ability to sustain a strong dividend payout is often associated with lower volatility, making these two characteristics complementary. Using a disciplined, rules-based methodology, the fund will screen for stocks with the potential for sustainable high dividends, while simultaneously screening out historically volatile stocks in the market,” according to Legg Mason.

The international developed markets cousin to LVHD and LVHE is the Legg Mason International Low Volatility High Dividend ETF (BATS: LVHI), which debuted earlier this year. LVHI tracks the QS International Low Volatility High Dividend Hedged Index, a benchmark that seeks to give investors exposure to dependable ex-U.S. developed markets dividend-paying stocks with strong yields and low volatility.

Like LVHI, the LVHE uses currency hedging, a potentially meaningful trait at a time when the dollar is gaining momentum against emerging markets currencies.

LVHE charges 0.5 percent per year, or $50 on a $10,000 investment.


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