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How Real Is the Need for Emerging Market Dividend ETFs?

Stocks in this article: MO VZ DEM AXJL DGS EDIV HILO VWO EWX VYM HDV SPY PCY EWM

So what should one think about the underachievement in the emerging market dividend space? Is it merely a matter of patience? Or are these ETFs tracking unreliable indices with questionable risk-reward benefits?

Conceptually, I like "EM Div" ETFs. Yet, one reason they may not be as attractive as their domestic counterparts are the comparable yields. The annualized dividend yield in this space is not significantly higher than emerging market sovereign debt. That fact may contribute to the enormous interest in PowerShares Emerging Market Sovereign (PCY) In contrast, most of the popular U.S. dividend ETFs have yields that are close to two times the 1.6%-yielding 10-year Treasury.

Granted, for many folks, Vanguard Emerging Markets ETF may not be worthy of the volatility here in 2012; not everyone is going to jump through hoops for 2.2% annualized. Nevertheless, there are emerging market investments with better-than-average dividend production and less volatility than VWO or SPY.

For example, iShares MSCI Malaysia (EWM) has a beta of 0.79 and an annual dividend yield of 3.7%.

Long-time readers know that I discuss Malaysia with a great deal of frequency. Not only is the dividend more attractive than the broader emerging market benchmark, but the EWM:VWO price ratio demonstrates significant relative strength.

If you're going to select an emerging market investment or you're going to look for yield to offset the risk of ownership, EWM is tough to beat.





This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.



Gary Gordon reads:

Real Clear Markets
Jeff Miller
indexuniverse
Charles Kirk
On Twitter, Gary Gordon follows:

Jonathan Hoenig
Doug Kass
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