The pain has been pretty severe in the dividend ETF market lately, largely thanks to a shift in the Fed’s policies. Now, with the prospect of bond buying ending sooner rather than later, T-Bills have seen their yields rise, dulling the appeal of comparable income-paying securities in the equity world.
Still, rates for a number of income securities are historically low forcing many investors to bite the bullet and dive into some little-appreciated corners of the yield world. One such segment that most investors overlook is undoubtedly the dividend growth market (also see Have You Overlooked These Dividend ETFs?).
Securities in this corner of the income universe are known for their slow and steady payout increases, and conservative management principles. Plus, the constant dividend increases do suggest that these stocks are doing well and can afford to give back more to shareholders.
Due to this, it could be argued that this segment may be a winner thanks to safety and good management, two factors which are key in today’s type of market. While it is true that these growth companies generally don’t have as robust of yields as many of their counterparts, this could actually work to their advantage in today’s climate which has seen truly high yielders sell off at a moment’s notice.
While there are a number of ways to apply this technique in the developing world, there aren’t many good options for the emerging market dividend growth segment. This is being corrected by EGShares though, as the company has just launched a new Emerging Markets Dividend Growth ETF which we have highlighted in greater detail below.
EMDG in Focus
This ETF looks to follow the price and yield performance of the FTSE Emerging All Cap ex Taiwan Diversified Capped Dividend Growth 50 Index. This benchmark looks to give investors exposure to 50 firms whose 5-year dividend payout growth is faster than the average dividend payout growth rate in the FTSE All Cap Emerging ex Taiwan world.
This results in a portfolio that has about 20% of its assets in financials, with 17% in oil and gas, and then 14.6% in consumer goods. From a national perspective, China takes the top spot at 19.5%, followed by South Africa (17%), Brazil (15.8%), and Indonesia (10.9%), so there is decent diversification from a country look too (see 3 Important Questions About Your ETF Portfolio).
In terms of individual companies, no single firm takes up more than 3% of assets, suggesting limited concentration issues. However, large caps do dominate the portfolio, as the average market cap comes in at just under $15 billion.
Investors should also note that the ETF is kind of on the expensive side, with a cost coming in at 85 basis points a year. This is offset by the robust yield of the underlying index though, as the current reading on this front comes in just below 3.9%, suggesting that it is a solid choice for income hungry investors.
“Many emerging market-based multinational companies have demonstrated their ability to increase dividends,” said Marten Hoekstra, CEO of Emerging Global Advisors in a press release. “We launched EMDG as an investment tool to enable dividend growth investors to implement their investment strategy in emerging markets and diversify dividend yield sources.”
There aren’t any other emerging market dividend growth ETFs on the market, so it looks as though EMDG will dominate the space, at least for the time being. Still, there are a host of other emerging market dividend ETFs out there, including several billion dollar products (see What Does Your Income ETF Focus On?).
Some of the most popular include the WisdomTree Emerging Markets Equity Income Fund (DEM - ETF report) and the SPDR S&P Emerging Markets Dividend ETF (EDIV - ETF report). These two both have hundreds of millions in assets under management, and decent volume to boot.
Investors should also note that the dividend growth model is extremely popular for domestic markets. There are currently two products that have a stranglehold on this segment, the SPDR S&P Dividend ETF (SDY - ETF report) and the Vanguard Dividend Appreciation ETF (VIG - ETF report).
Both of these have more than $10 billion in assets under management and volume higher than one million shares a day. If the new emerging market fund—which follows a similar metric to VIG and SDY—can see even a fraction of this success, EGShares could have a winner in its lineup with EMDG, giving investors a new option in today’s uncertain dividend ETF climate.
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