iShares launches emerging markets dividend ETF

Nov 29th, 2011 | By | Category: Equities

Emerging Market ETFs pay dividends

iShares, the ETF platform of BlackRock, has announced the launch of the iShares Dow Jones Emerging Markets Select Dividend ETF, a physically replicating ETF which seeks to deliver exposure to emerging market companies that can sustain an appropriate dividend programme over time.

iShares launches Emerging Markets Dividend ETF

The iShares DJ Emerging Markets Select Dividend ETF's largest country weight is Turkey, pictured.

The ETF aims to track the performance of the Dow Jones Emerging Markets Select Dividend Index which currently consists of 100 companies across 18 emerging markets.

The ETF, which has listed on the London Stock Exchange, aims to provide investors with the opportunity to combine an income stream with the potential for long-term capital growth.

The new product is a distributing fund, giving investors the flexibility to withdraw income on a quarterly basis or to reinvest the income payments received according to their investment objectives.

Axel Lomholt, Head of iShares Product Development EMEA commented:

“With many developed market interest rates at historic lows, investors are finding it increasingly difficult to achieve their income targets. This ETF offers investors the potential to achieve dividend yield combined with access to the growth potential of emerging markets companies. The net indicated annual yield for the index was 7.34% at the end of October.”

Michael A. Petronella, President, Dow Jones Indexes commented:

“We are pleased to license The Dow Jones Emerging Markets Select Dividend Index to iShares for an ETF that provides access to opportunities associated with emerging-market dividends. This index is based on a robust methodology that aims to capture the performance of dividend-paying companies that can sustain their dividend programme over time and it has demonstrated better performance in comparison to its broad-market counterparts.”

The power of compounding dividends

As we have often mentioned before, the effect of compounding dividends should not be underestimated. Analysis by James Montier, the author of titles such as Value Investing and Behavioural Investing, demonstrates that dividends have been the most significant contributor to equity returns over the long term.

On a 5-year time horizon, he shows that dividend yield and dividend growth have typically accounted for almost 80% of the return; over the very long term (1871-2009) they have accounted for some 90% of total return.

According to Montier, the importance of dividends is not just a US or European phenomenon – the same patterns hold true across a wide variety of global developed and emerging equity markets.

Of the ETFs tracking emerging markets most suitable for UK-based investors, the iShares Dow Jones Emerging Markets Select Dividend ETF joins the SPDR S&P Emerging Markets Dividend ETF from State Street Global Advisors.

The SPDR ETF tracks S&P Emerging Markets Dividend Opportunities Index, which is designed to provide exposure to high yielding common stocks from emerging markets. The fund’s largest holdings include Eletropaulo Metropolitana of Brazil, Korea Exchange Bank of South Korea and Total Access Communication of Thailand.

For investors looking to target dividend income in Asia specifically, they might consider the DB X-tracker MSCI AC Asia Ex Japan High Dividend Yield Index ETF.

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