DEM WisdomTree Emerging Markets High Dividend Fund

Several ETF providers, whether big or small, are adding variety of new funds with innovative strategies into the space, making 2013 a year of originality. With this trend, ALPS, a small ETF issuer best known for its commodity products, appears to be expanding in the international dividend ETF world, as evidenced by the latest SEC filing for the International Sector Dividend Dogs ETF (IDOG).

Income investing remains popular even in the growing markets. This is especially true in the dividend ETF world, as many top income funds have seen huge inflows so far in 2013.

The most popular dividend ETF in the company’s line-up is the Sector Dividend Dogs ETF (SDOG), which has close to $171 million in assets, roughly one-fourth of ALPS’s total AUM. This clearly shows that investors are embracing these products as a way to achieve equity appreciation with a lower level of risk, and that the space is key for ALPS (read: 4 Excellent Dividend ETFs for Income and Stability).

The filing targets the highest yielders in the international equity market, potentially giving investors another option for current income in today’s yield starved environment. While a great deal of the key information – such as the expense ratio– was not available in the initial release, some key points were released in the filing.

We have highlighted those below for yield-starved investors, who may be looking for a high yield play from ALPS should it pass regulatory hurdles:

Proposed Methodology

The proposed ETF looks to track the performance of the S-Network International Sector Dividend Dogs Index, before fees and expenses. This benchmark seeks to focus on large cap securities domiciled in Europe, Australia and the Far East (EAFE) and focus only on the highest dividend paying stocks (i.e. “Dividend Dogs”) (read: 3 Red Hot Dividend ETFs).

This is done by selecting the five stocks in each of the 10 Global Industry Classification Standard (GICS) sectors which offer the highest yields as of the last trading day of November of a particular year. Once this is determined, the fund looks to equally weight each of these 50 securities, and rebalance these once in a quarter in order to maintain a basket that is as close to equally-weighted as possible.

How does it fit in a portfolio?

The product could be an interesting choice for investors seeking a broadly diversified play on the international dividend market, which zeros in on high yielding stocks (read: Retire Early with these 3 Dividend ETFs).

High quality dividend stocks and ETFs are better options for investors searching for yields in the current environment of rock-bottom interest rates. At the same time, since most dividend paying companies are stable and mature companies, the proposed ETF could also provide greater stability and safety in a volatile environment.

Can it succeed?

There is still an appetite for these kinds of funds despite several choices already in the space (read: WisdomTree Files for Two Dividend ETFs).

The most popular in the international bunch is the WisdomTree Emerging Markets Equity Income Fund (DEM). It measures the performance of the highest dividend yielding stocks selected from the WisdomTree Emerging Markets Dividend Index. The fund has amassed about $5.5 billion in AUM and yields 3.45% in annual dividends. The ETF charges 63 bps in fees per year from investors.

The next popular product is the SPDR S&P International Dividend ETF (DWX), which is middle of the road for fees at 45 bps a year. The fund offers robust dividend yields of roughly 5.42% and has managed assets worth $1.3 billion (see more ETFs in the Zacks ETF Center).

Both funds have managed to amass a significant amount of assets, suggesting that there is tremendous demand for dividend-focused products. Given this trend, ALPS could definitely have another winner on its hands if it can ever bring its proposed International Sector Dividend Dogs ETF to market.

The fund, if approved, could give investors a new way to play the international market with a focus on yield that doesn’t look at constant dividend increases (read: Two Unconventional Sources of ETF Yield).

We believe high dividend yielding securities and the ETF will perform better over the next several years as baby boomers look for sources of income in this low interest rate environment, and we expect capital to continue flowing to high yielding equities for a long time.

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WISDMTR-EM EQ I (DEM): ETF Research Reports
 
SPDR-SP INT DIV (DWX): ETF Research Reports
 
ALPS-SEC DV DOG (SDOG): ETF Research Reports
 
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