DEM WisdomTree Emerging Markets High Dividend Fund

Trading might be sluggish in the middle of August, but this hasn’t deterred ETF sponsors from launching new products. In fact, a wave of funds has hit the market in recent weeks, suggesting that there are plenty of fund ideas still in the pipeline.

The choices by sponsors in recent days have been pretty diverse, although there has definitely been a renewed push for emerging markets. WisdomTree and KraneShares both put out new funds targeting subsets of this space, while EGShares has just got in on the act as well.

The company, which exclusively focuses on emerging markets, put out a new product in early July, the EGShares Emerging Markets Dividend Growth ETF (EMDG) and is now following that up with another income-centric product. This time, the focus will be purely on yield, potentially giving investors a new choice for high income paying securities in the developing world (see Emerging Market Dividend Growth ETF Hits the Market).

For those looking for such an option, we have highlighted some of the key details regarding the product below:

New Emerging Market Income ETF in Focus

The new product will go by the name of the EM Dividend High Income ETF (EMHD) and it looks to charge investors 85 basis points a year in fees. The product will track the FTSE Equal Weighted Emerging All Cap ex Taiwan Diversified Dividend Yield 50 Index, which is a wordy way of saying it will give equal weight exposure to a basket of emerging market high yield stocks, not including those in Taiwan.

In total, the portfolio will hold 50 stocks in its basket, generally focusing on mid and large caps, as evidenced by the index’s average market cap of $7.1 billion. It should also be noted that the number of stocks per industry (and country) is limited to 10, so there looks to be a solid level of diversification.

Still, traditional high yield sectors like financials and utilities each account for about 20% of the benchmark, followed closely by basic materials (16.4%), telecoms (12.3%), and consumer goods (10.1%). From a national perspective, Brazil (20.7%), South Africa (18.1%), China (14.7%), and Turkey (13.9%) take the top four spots.

While expenses are a bit high, the real focus here is the yield. Currently, the underlying index is sporting a dividend yield of 8.8%, while the product has promised to issue monthly payments. Should the fund come close to this payout, the product may be a very interesting choice in the income world (see Emerging Market Dividend ETFs for Income and Growth).

“The rise of emerging market-based multinationals has greatly expanded the number of companies with the capacity to sustain high dividend payments,” said Marten Hoekstra, CEO of Emerging Global Advisors in a press release. “EMHD applies our firm’s emerging market expertise to create a high income solution that can provide investors with a global approach to diversifying income streams.”

How does it fit in a portfolio?

Obviously, this ETF is designed to be an income destination for investors, as evidenced by the huge index yield. It could also allow investors to achieve a different type of play on emerging markets that goes off the beaten path.

The fund is not, however, likely to be a pick for those seeking a cheap choice in the emerging market world, as the expenses for EMHD are quite high compared to low cost choices in the space. Additionally, it is a bit concentrated from both a sector and nation perspective, so it is unlikely to be the broadest play out there (see 3 Excellent ETFs for Growing Dividends).

ETF Competition

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 EMHD to build assets.

This is particularly the case when looking at a trio of relatively popular dividend focused ETFs on the market, all of which cost less than EMHD and have more than $100 million in assets under management. This group includes funds like the iShares Emerging Markets Dividend ETF (DVYE), the SPDR S&P Emerging Markets Dividend ETF (EDIV), and the WisdomTree Emerging Markets Equity Income Fund (DEM).

However, all three of these look to have a yield that will probably be less than the new EGShares product, although EDIV may be close. The trio members all have double digit allocations to Taiwan, so this also looks to be a big difference between the entrenched funds and the new EMHD (also see Guide to Small Cap Emerging Market ETFs)

Given this, EGShares’ new product will have to sell investors on its possibly much higher yield, and its focus on more ‘emerging’ economies. Should this be the case, it might be able to accumulate some assets, though no matter what it looks to be a difficult fight in the increasingly crowded emerging market dividend segment.

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WISDMTR-EM EQ I (DEM): ETF Research Reports
 
ISHARS-EM DIV (DVYE): ETF Research Reports
 
SPDR-SP EM DVD (EDIV): ETF Research Reports
 
EGS-EM DIV (EMDG): ETF Research Reports
 
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