This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Finding Bargains in Depressed Emerging Markets


NEW YORK ( TheStreet ) -- With investors fretting about the Ukraine crisis and China's slowing economy, most emerging-markets exchange-traded funds have sunk.

Dividend funds have proved particularly disappointing. During the past year, SPDR S&P Emerging Markets Dividend (EDIV) lost 14.5%, while WisdomTree Emerging Markets Equity Income (DEM) dropped 10.8%. In contrast the broad-based iShares MSCI Emerging Markets (EEM) lost 4.7%, and the S&P 500 gained 23.3%.

After the battering, the dividend ETFs may be intriguing holdings for contrarians. The WisdomTree ETF sells for a forward price-earnings ratio of 7.5, about half the figure for the S&P 500. The dividend funds also offer compelling yields. SPDR S&P Emerging Markets Dividend yields 6.3%, compared with a yield of 2% for the S&P 500.

If you decide to try bottom fishing, keep in mind that dividend stocks in the emerging markets are different from their U.S. counterparts. In the U.S., many blue chips pay dividends that consistently rise. Managements cut dividends only in extreme circumstances. Solid American dividend stocks are steady performers, shining in downturns.

But in the emerging markets, dividend payers are not necessarily steady choices. Some companies regularly raise and lower dividends. Dividend payers don't necessarily do well in downturns.

Still, the emerging-markets ETFs can be compelling because they tend to focus on the sectors that are the most unloved. After excluding small stocks, the SPDR fund managers pick the 100 stocks with the highest dividend yields. The portfolio gives the most weight to the highest-yielding stocks.

Because yields rise as stock prices fall, rich payouts provide a good indicator that shares are out of favor.

"The dividend ETF allows you to systematically move into parts of the market that are undervalued," says David Mazza, SPDR's ETF investment strategist.

The SPDR portfolio has sizable stakes in mining and energy companies in Brazil and South Africa, which have been punished as investors worried that demand from China would slow. The fund has almost no holdings in consumer staples, one of the top-performing sectors lately. Investors have viewed consumer stocks as a safe haven that could continue growing even if economies slow.

WisdomTree takes high-yielding stocks and weights them according to the total dividends that they pay. As a result, the portfolio tends to have the greatest weighting in large companies that produce huge income streams.

The biggest holding is Gazprom (OGZPY), a Russian gas giant. The stock has traditionally sold at a modest price-earnings multiple because investors worry about the corruption and unstable politics that plague Russian companies. Lately, Gazprom has sunk even lower because of fears that the Ukraine crisis could disrupt sales. The shares sell for a multiple of 2, compared with12 for Exxon Mobil (XOM).

Another holding is Russian oil giant Lukoil (LUKOY), which has a multiple of 5.

Other WisdomTree holdings include big Chinese banks, such as Bank of China (BACHY), which has a multiple of 5. In contrast, JPMorgan Chase (JPM) commands a multiple of 14.

"People are worried about a Chinese banking crisis," says Jeremy Schwartz, research director of WisdomTree. "The big Chinese banks have dividend yields of 6% or 7%. That is unheard of."

SPDR's Mazza says that many investors may not want to put their entire emerging-markets allocation into the value stocks of the dividend ETFs. To build a diversified portfolio that includes some growth exposure, he suggests pairing the SPDR dividend fund with SPDR S&P Emerging Markets Small Cap (EWX).

The small-cap fund has big positions in technology, health and consumer stocks. By holding both SPDR ETFs, investors could obtain rich income and a mix of growth stocks that can benefit from expanding domestic economies.

At the time of publication, the author had no position in any of the funds mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs