Emerging Global Advisors launches EGShares Emerging Markets Dividend Growth ETF (EMDG)

Jul 1st, 2013 | By | Category: Equities

Emerging Global Advisors, a specialist provider of emerging markets-focused exchange-traded funds (ETFs), has announced the launch of the EGShares Emerging Markets Dividend Growth ETF (EMDG). The fund, which has been listed on the NYSE Arca, provides exposure to emerging market companies that have demonstrated an ability to consistently grow dividends.

Emerging Global Advisors launches EGShares Emerging Markets Dividend Growth ETF (EMDG)

Marten Hoekstra, CEO of Emerging Global Advisors.

The launch of the fund recognises the increasing number of emerging market companies that pay dividends, a result of the maturation of many emerging market companies. It also comes at a time when investors are widening the search for yield.

Marten Hoekstra, CEO of Emerging Global Advisors, said: “Many emerging market-based multinational companies have demonstrated their ability to increase dividends. We launched EMDG as an investment tool to enable dividend growth investors to implement their investment strategy in emerging markets and diversify dividend yield sources.”

The fund comes with an expense ratio of 0.85% and is based on the FTSE Emerging All Cap ex Taiwan Diversified Capped Dividend Growth 50 Index, an index co-designed by FTSE and Emerging Global Advisors. The index represents the performance of 50 emerging market companies with high compound annual dividend growth rates that have also passed a series of screens to ensure dividend sustainability.

To be eligible for inclusion in the index, a company must first be a constituent of the FTSE Emerging All Cap ex Taiwan Index, the parent index. Then it must have paid a dividend in each of the past five years; must have a minimum trailing five-year compound annual dividend growth rate of at least 6%; a maximum trailing one-year dividend payout ratio less than the Industry Classification Benchmark (ICB) mean +30%; a minimum trailing one-year dividend yield greater than 50% of the trailing dividend yield of the parent index; and a minimum trailing one-year positive earnings per share.

Finally, once the stocks have been screened, they are weighted by market capitalisation, subject to an individual constituent cap of 2.5% and a cap of eight stocks per industry and country, to ensure diversification.

Well-known holdings include America Movil, Standard Bank, China Construction Bank, Lukoil, Bank of China, Rosneft and MTN Group. China contributes the largest weight with 19.5%, followed by South Africa (17%), Brazil (15.8%), Indonesia (10.9%) and Malaysia (8.2%). Financials forms the largest industry component with 20.1%, followed by Oil & Gas (17.1%) and Consumer Goods (14.6%).

Jonathan Horton, President of FTSE North America and Head of FTSE’s ETP Service Unit, said: “We were delighted to have had the opportunity to work with Emerging Global Advisors as they expand their product suite.”

He added: “By placing tradability, representativeness and strong governance at the core of our index design and supporting index construction with a transparent country classification system, FTSE offers a holistic solution for ETF issuers seeking to provide new investment opportunities in emerging markets.”

The new fund stands out in that it is the first to place a real emphasis on dividend growth, rather than just high dividend yields. Nonetheless it will be pitted against the likes of the WisdomTree Emerging Markets Equity Income ETF (DEM), the iShares Emerging Markets Dividend ETF (DVYE) and the SPDR S&P Emerging Markets Dividend ETF (EDIV) in the US, and the First Trust AlphaDEX Emerging Market Dividend ETF (CAD-Hedged) (FDE) in Canada.

UK and European investors looking to play the broader emerging markets dividend theme could consider the iShares Emerging Markets Dividend UCITS ETF (SEDY) or SPDR S&P Emerging Markets Dividend UCITS ETF (EMDV), which are cross-listed on a number of exchanges in Europe including the London Stock Exchange and Deutsche Börse.

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