While emerging market stocks have been hammered over the past year due to falling energy and material prices, many investors believe time could be ripe for cherry picking quality stocks outside materials, energy and banking stocks.
That puts the focus on emerging market dividend growers with an established history of growing payouts.
ProShares, the exchange-traded funds provider known for its alternative investment offerings, recently expanded its suite of funds that specifically target companies with long-term records of consistent dividend growth. The newly launched ProShares MSCI Emerging Markets Dividend Growers ETF (EMDV), the firm’s sixth ETF in the ProShares lineup of dividend growers funds, targets sustained dividend growth to enhance income potential.
Growing dividend is also an indicator of financial strength meaning firms with weaker balance sheets gets screened from the potential constituent’s list.
Academic research supports superiority for dividend reinvesting as a long-term investment strategy. For instance, a study by independent research firm Ned Davis Research found both US and international companies that boosted dividends year-over-year outperformed their peers that didn’t over a two-decade period spanning 1996 to 2015.
The passively-managed EMDV tracks the MSCI Emerging Markets Dividend Masters Index, a subset of the broader MSCI Emerging Markets Index, and selects companies with at least seven consecutive years of dividend rises. However, firms with shorter history of dividend growth could be included if a minimum of 40 index-components is not achieved through the initial screening process.
All index-constituents are equally weighted with exposure to any single sector capped at 30 percent. To mitigate concentration risk, exposure to individual countries is capped at 50 percent.
The underlying index is rebalanced quarterly in February, May, August and November while the annual reconstitution takes place during the November rebalance. Top three country holdings are China, India and South Africa.
EMDV’s gross expense ratio is 1.04% while the fund’s net expense ratio comes at 0.60 percent due to a contractual waiver valid till October 2017.
Disclosure: No holdings