What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
DVYE is managed by Blackrock, and this fund has amassed over $551.24 M, which makes it one of the larger ETFs in the Broad Emerging Market ETFs. Before fees and expenses, this particular fund seeks to match the performance of the Dow Jones Emerging Markets Select Dividend Index.
The Dow Jones Emerging Markets Select Dividend Index measures the performance of the companies in emerging market countries that have provided relatively high dividend yields on a consistent basis over time.
Cost & Other Expenses
For ETF investors, expense ratios are an important factor when considering a fund’s return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Operating expenses on an annual basis are 0.49% for DVYE, making it on par with most peer products in the space.
DVYE’s 12-month trailing dividend yield is 5.53%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Taking into account individual holdings, Severstal (CHMF) accounts for about 2.34% of the fund’s total assets, followed by Magnitogorskiy Metallurgicheskiy K (MAGN) and Astral Foods Ltd (ARL).
The top 10 holdings account for about 17.63% of total assets under management.
Performance and Risk
Year-to-date, the iShares Emerging Markets Dividend ETF has gained about 7.76% so far, and is up about 1.41% over the last 12 months (as of 06/13/2019). DVYE has traded between $36.59 and $42.09 in this past 52-week period.
The fund has a beta of 0.76 and standard deviation of 15.41% for the trailing three-year period, which makes DVYE a medium risk choice in this particular space. With about 137 holdings, it effectively diversifies company-specific risk.
IShares Emerging Markets Dividend ETF is a reasonable option for investors seeking to outperform the Broad Emerging Market ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Core MSCI Emerging Markets ETF (IEMG) tracks MSCI Emerging Markets Investable Market Index and the Vanguard FTSE Emerging Markets ETF (VWO) tracks FTSE Emerging Markets All Cap China An Inclusion Index. IShares Core MSCI Emerging Markets ETF has $57.74 B in assets, Vanguard FTSE Emerging Markets ETF has $62.39 B. IEMG has an expense ratio of 0.14% and VWO charges 0.12%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Broad Emerging Market ETFs.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
The iShares Emerging Markets Dividend ETF (DVYE) was trading at $40.10 per share on Thursday afternoon, up $0.01 (+0.02%). Year-to-date, DVYE has declined -3.79%, versus a 8.61% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Yahoo! Finance.