Dividend securities have received a new-found optimism as of late, thanks mainly to global growth worries which weighed on bond yields. Rates for a number of income securities are pretty low forcing many investors to set foot in the high yield world (read: 3 Excellent Dividend ETFs for Growth and Income).
Emerging markets securities are known for often times being high-yield nature. Besides, the space has fared nicely this year braving the issues like the end of QE and rising possibilities for a hike in interest rates next year in the U.S. In fact, a bout of cheap money in several corners of the developed world sharpened the appeal for the space.
Thanks to this sentiment, Global X has filed for a high dividend fund targeting emerging market stocks and it appears to be taking a similar approach to the issuer’s already available and famous version, the Global X SuperDividend ETF (SDIV - Free Report) ).
The Proposed Fund in Focus
This fund looks to track the INDXX SuperDividend Emerging Markets Index which is a benchmark of 50 equally weighted firms that rank among the highest yielding securities in the emerging markets. The benchmark also applies a few dividend stability filters in order to make sure that only the most likely to pay firms are included in the index. For example, the index includes those tickers that paid out dividends over the past two years.
The fund will cap the industry weight at 25% of the portfolio. Ticker symbol and the expense ratio of the fund are yet to be disclosed (read: Dividend ETFs Explained: What Investors Need to Know).
How Does it Fit in a Portfolio?
Obviously, this ETF is designed to be an income solution for investors via the emerging market route. Further, the Fed has promised to keep the rates low for a longer period, to say more clearly, for as long as the economy requires support. If the rates do rise at all, the hike is unlikely to hit before mid 2015 at the earliest.
Till then, investors can easily look for some other high-yielding avenues. Also, thanks to the nagging taper fear since mid last year, many of the emerging market equities have seen huge sell-offs and are trading at cheap valuations at the current level.
This argument can be illustrated by the P/E (ttm) value of SPDR S&P 500 ETF (SPY) and iShares MSCI Emerging Markets (EEM) being at 18 and 13 times. Thus, investors may be able to reap some capital appreciation (hopefully) along with a steady stream of current income.
While the ETF certainly looks to have one of the highest yields in the emerging market space, it is by no means the only dividend-focused emerging market ETF on the market. There are actually a handful of other products already in the space, so it might be difficult for the planned ETF to build assets (read: ALPS Debuts Dividend ETF in Emerging Market Space).
This is particularly true when relatively popular dividend focused ETFs on the market are considered. This group includes funds like WisdomTree Emerging Markets Equity Income Fund (DEM) with $2.94 billion assets, SPDR S&P Emerging Markets Dividend ETF (EDIV) with $453 million in assets and iShares Emerging Markets Dividend ETF (DVYE) with $245 million in assets. All three funds pay out outsized yields of 4.72%, 4.55% and 5.14% (as of December 8), respectively.
Given this, Global X’s new proposed product, if it gets approval, will have to sell investors on possibly much higher yield. Expense ratios also need to be competitive. Should this be the case, it might be able to accumulate some assets.
Besides, Global X has seen immense success in its SDIV ETF which is a billion dollar fund and yields about 6.08% (as of December 8, 214). Given this, we expect the proposed ETF too should be able to catch up and amass assets once approved.
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