Hope seemingly always burns eternal for emerging markets equities, but to be fair the asset class is showing some signs of life and that could spotlight opportunity with the ALPS Emerging Sector Dogs ETF (EDOG ).
The rollercoaster ride known as emerging markets (EM) during the coronavirus pandemic may have put off investors with all the volatile market movements in EM assets. However, the ride may be smoothening as volatility wanes amid a number of economies reopening and adjusting to social distancing measures.
EDOG, which debuted over six years ago, tracks the performance of the S-Network Emerging Sector Dividend Dogs Index. The index is comprised of the highest paying stocks, or “Dividend Dogs,” from the S-Network Emerging Markets Index, which holds large-cap, emerging market stocks. The Dividend Dogs include the five stocks in each of the ten Global Industry Classification Standard sectors that make up the S-Network Emerging Markets.
“China was the first country to be hit by the Covid-19 pandemic, and now looks like it will be the first out of it. The latest data shows it returned to growth in the second quarter, although domestic consumption and investment were weak,” according to Hellenic Shipping News. “GDP grew by 3.2 percent, beating consensus estimates of 2.4 percent, despite falling retail sales and business investment. This comes after a sharp drop of 6.8 percent in the first quarter.”
Emerging markets central banks are responding to the coronavirus pandemic with a monetary stimulus of their own, including a spate of interest rate cuts that are depressing yields on some risky bonds.
“A globally diversified portfolio should always make space for emerging markets, although most investors should limit this to 10 to 20 percent of their total holdings, depending on their attitude to risk,” reports Hellenic Shipping. “Buying individual stocks is too risky for most, but you can get broad-based exposure through a low-cost ETF.”
Fortunately, dividends, particularly those with dependable track records of growth, can stem some of the volatility that could accompany an emerging market pullback. EDOG yields 4.66% or 276 basis points above the MSCI Emerging Markets Index.
Other emerging markets dividend ETFs include the ProShares MSCI Emerging Markets Dividend Growers ETF (EMDV ), iShares Emerging Markets Dividend ETF (DVYE ) and the WisdomTree Emerging Markets Equity Income Fund (DEM ).