Emerging Market Dividend ETFs

ETF Trends

More investors are venturing beyond the U.S. and developed nations in their search for dividend stocks. Emerging market ETFs that focus on dividend payers are becoming an increasingly popular option.

The two largest emerging market ETFs by assets are iShares MSCI Emerging Markets (NYSEArca: EEM) and Vanguard Emerging Markets ETF (NYSEArca: VWO).

“While these are great funds, we also have an affinity for a dividend-focused emerging-markets fund that has delivered better risk-adjusted returns relative to its cap weighted peers,” Patricia Oey wrote in a Morningstar article.

She singled out WisdomTree Emerging Markets Equity Income (NYSEArca: DEM).

“As the developed world continues to face slow growth in the near term, emerging economies should benefit from a number of long-term growth drivers such as new infrastructure construction, higher-value manufacturing and services exports, and rising domestic consumption. And in the near term, most emerging-markets countries have more leeway to adjust their monetary and fiscal policies to support growth, and inflation risks have ebbed,” Oey said.

Emerging market ETFs have seen heavy inflows in 2012.  [ETF Spotlight: Emerging Markets Dividend Fund]

WisdomTree Emerging Markets Equity Income allows passive investing with the security of an income stream. The portfolio is value oriented, and holds about 300 of the highest-yielding emerging market stocks, weighted by annual dividends paid, Morningstar notes. Since 2007, DEM has shown less volatility than the MSCI Emerging Market Index, while earning higher returns. [Best Emerging Market ETFs]

Yet the fund is still susceptible to emerging market volatility such as steep currency declines and geo-political risks. The fund does not hedge foreign currency exposure so the risk entails both falling currency values and falling asset prices. [Best Dividend ETFs]

BlackRock’s iShares unit recently launched an ETF that will compete with DEM. The new fund is iShares Emerging Market Dividend Fund (NYSEArca: DVYE - News) . [Emerging Market Dividend ETF]

WisdomTree Emerging Markets Equity Income

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Tisha Guerrero contributed to this article.

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