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Emerging Markets Dividend ETFs In Focus (DEM, DGS, EDIV, HILO)

December 8th, 2011

Daniela Pylypczak: Over the last couple of years, investor interest in certain asset classes and general strategies has spiked as a result of the challenges facing global financial markets. With interest rates at record lows and volatility jumping to higher-than-average levels, dividend-focused ETFs have become popular products. ETFs linked to indexes that screen based either on dividend stability or magnitude have the potential to enhance current returns while also smoothing out volatility, and as such have been the targets of some significant inflows [see our free ETF Screener].

Another area of increased interest is emerging markets; despite some recent struggles, many U.S.-based investors have begun to shed their home country bias and accept that more meaningful allocations to developing economies are necessary for achieving long-term asset growth. With developing economies in North America and Europe bogged down by hefty debt burdens, slow growth, and elevated unemployment, the “growth gap” relative to emerging markets has never seemed greater. Looking out over the next few decades, the disconnect in economic potential is significant–a realization that has prompted larger allocations to developing economies in some long-term portfolios [see also Three Commodities Dividend Lovers Must Own].

Perhaps not surprisingly, there are a handful of ETFs that combine these two focuses, targeting emerging market stocks that make consistent and meaningful dividend payments. For investors looking to target this asset class, ETFs can be a useful tool to utilize–and there are a number of different options to potentially choose:

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DEM DGS EDIV HILO
Number of Holdings 282 557 123 28
Largest Country Weight Taiwan (21%) Taiwan (26%) Brazil (19%) South Africa (17%)
Largest Sector Weight Financials (25%) Industrials (15%) Telecom (17%) Telecom (32%)
30 Day SEC Yield 9.05% 11.28% 3.99% 6.73%

WisdomTree Emerging Markets High Yielding Equity Fund (NYSEARCA:DEM)

This ETF seeks to replicate the WisdomTree Emerging Markets Equity Income Index, a benchmark that measures the highest dividend yielding stocks in emerging markets. This benchmark is dividend-weighted, meaning that the weighting afforded to each component is determined by the cash dividends paid as opposed to the value of the company. DEM maintains a deep and balanced portfolio; there are close to 300 individual securities from more than a dozen different countries. The country breakdown of  DEM differs somewhat from “plain vanilla” emerging markets ETFs; the largest weights in this fund include Taiwan (21%), Brazil (20%), Malaysia (9%), and South Africa (9%) [see also Emerging Markets ETFs: Five Factors To Consider].

The sector breakdown of DEM is what one might suspect given the focus on high yielding stocks; financials and telecoms combine to make up about 45% of the portfolio.

WisdomTree Emerging Markets SmallCap Dividend Fund (NYSEARCA:DGS)

DGS is the only ETF on this list that offers investors exposure to small-cap emerging markets stocks. This ETF tracks the fundamentally-weighted WisdomTree Emerging Markets SmallCap Dividend Index, a benchmark that contains more that 500 securities that currently maintain a dividend yield of about 4.4%. DGS maintains a well-diversified portfolio with allocations to a wide array of sectors, including holdings in industrial, consumer cyclical, technology, and financial services sectors.

In addition to focusing on smaller companies, this fund distinguishes itself from other emerging markets ETFs in that it predominately focuses on smaller emerging economies rather than the popular BRIC countries; Brazil, Russia, India, and China account for less than 15% of holdings. DGS is heavily invested in Asian countries with Taiwan, Thailand, and South Korea being among its largest country allocations, accounting for close to half of the portfolio [see also Not Just EEM & VWO: Emerging Markets ETF Options].

SPDR S&P Emerging Markets Dividend ETF (NYSEARCA:EDIV)

This ETF seeks to replicate the S&P Emerging Markets Dividend Opportunities Index, a benchmark that is comprised of dividend paying securities of publicly-traded companies in emerging markets. EDIV’s well-balanced portfolio consists of more than 100 individual securities with its largest holding being Korea Exchange bank (2.89%), followed by the Brazilian electrical power distributor Eletropaulo Metropolitana (2.71%). The fund differentiates itself from the above ETFs on this list with its unique weighting methodology. Instead of weighting stocks according to the amount of cash dividends paid, EDIV weighs their securities by annual dividend yields, resulting in the index producing an impressive dividend yield of over 7% [see also Five ETFs For Global Yield].

EGShares Low Volatility Emerging Markets Dividend ETF (NYSEARCA:HILO)

HILO is an attractive option for investors wishing to tap into emerging markets while still maintaining relatively low risk exposure. The fund tracks the Indxx Emerging Markets High Income Low Beta Index, a dividend yield-weighted benchmark that is designed to provide lower volatility and higher income than cap-weighted emerging markets indexes. The fund is comprised of approximately 30 securities that are selected based on their liquidity and dividend policy. Not surprisingly, the majority of the HILO’s portfolio is allocated to the telecom (32%), industrials (17%), and utilities (14%) sectors, which are considered to be some of the highest paying dividend sectors. Unlike other ETFs in this category, HILO veers away from quasi-developed markets such as South Korea and Taiwan and instead focuses on more “pure” emerging countries, which include South Africa (17%), China (16%), and Brazil (14%) [see also Dividend ETF Special: 25 Equity ETFs With Attractive Distribution Yields].

Written By Daniela Pylypczak From ETF Database Disclosure: No positions at time of writing.

ETF Database is committed to giving our audience, consisting of both active traders and buy-and-hold investors, information that, to our knowledge, is truthful and non-biased. [For more ETF insights, sign up for our free ETF newsletter or try a free seven day trial of ETFdb ProETFdb Pro Members Only.]


NYSE:DEM, NYSE:DGS, NYSE:EDIV, NYSE:HILO


 

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