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Low-Volatility, Dividend ETFs a Bright Spot in Emerging Markets


Emerging markets have been a disaster for investors this year but ETFs tracking dividend and low-volatility strategies have managed to attract meaningful inflows.

For example, iShares MSCI Emerging Markets Minimum Volatility (EEMV) has gathered $1.8 billion so far in 2013, according to IndexUniverse flow data. [Some Emerging Market ETFs Actually Bringing in Cash]

The fund appeals to investors who want exposure to notoriously volatile emerging markets with a more conservative approach. The tracking index contains equity securities in global emerging markets that in aggregate have lower volatility.

Volatility is a stock’s tendency to fluctuate in price and is often used to measure risk.

“Because emerging-markets stocks are particularly volatile, a minimum volatility strategy such as that embedded in EEMV can be an attractive choice for passive emerging-markets equity exposure,” says Morningstar senior fund analyst Patricia Oey in a report on the ETF. “Although this is a minimum volatility fund, EEMV is still risky, as emerging-markets equities and currencies can see steep declines when global market volatility spikes.”

Other low-volatility ETFs for emerging markets that have seen net inflows this year include PowerShares S&P Emerging Markets Low Volatility (EELV) and EGShares Low Volatility Emerging Markets Dividend (HILO). [Low Volatility ETFs Lead EM Rebound]

Dividend ETFs tracking developing economies have also seen cash move in the door this year.

WisdomTree Emerging Markets Equity Income (DEM) has gathered $628 million. “DEM holds over 200 high-yielding emerging-markets stocks, weighted by their aggregate annual cash dividends paid, which results in a portfolio fairly different from that of a cap-weighted emerging-markets fund,” says Morningstar’s Oey.

Other dividend funds for emerging markets include WisdomTree Emerging Markets SmallCap Dividend (DGS), SPDR S&P Emerging Markets Dividend (EDIV) and iShares Emerging Markets Dividend (DVYE). All of these ETFs have seen positive flows for 2013.

The largest emerging market ETFs, Vanguard FTSE Emerging Markets (VWO) and iShares MSCI Emerging Markets (EEM), have experienced net outflows of $4.5 billion and $8.5 billion, respectively.

Full disclosure: Tom Lydon’s clients own EEM.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.