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A New Low Volatility, High Dividend EM ETF On the Way

Sanghamitra Saha
Updated

Legg Mason is set to spread its “Low Volatility High Dividend” theme in every corner of the ETF world. Following the success of its U.S.-oriented fund Legg Mason Low Volatility High Dividend ETF LVHD, the issuer rolled out Legg Mason International Low Volatility High Dividend ETF LVHI) to capture the market outside the U.S. And now, it is priming for a more-targeted exposure to emerging markets by filing for Legg Mason Emerging Markets Low Volatility High Dividend ETF (LVHE). Let’s delve a little deeper into the proposed fund:

Inside LVHE

The fund looks to track an index which consists of emerging markets’ stocks with relatively high yield and low price and earnings volatility. Also, the fund alleviates the impact of fluctuations between the value of the U.S. dollar and currencies in which the fund’s securities are denominated, as per the filing. The fund charges 50 bps in fees.

As initially constituted and balanced, no stock of the underlying index will receive more than 2.5% of the basket and no specific sector will have over 25% of the index. A particular country will not get more than 15% focus while real estate investment trust (“REIT”) components will not exceed 15% of the underlying index.

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How Does It Fit in a Portfolio?

Emerging market equities have been seeing a stellar run this year on a host of reasons. No fresh rate hike so far this year after the liftoff in December 2015, the hunt for regular current income amid rock-bottom levels of yield and relatively higher growth rates have made this astounding run possible. The ultra-popular iShares MSCI Emerging Markets ETF EEM is up 16.2% (as of September 2, 2016).

Economy-specific issues are much well-controlled in the bloc lately. In fact, several emerging economies have been resorting to policy easing via interest rate cuts or by offering some other accommodative measures in order to boost growth (read: 5 Reasons Why Emerging Market ETFs Are Still a Buy).

With the August job data coming in weaker than expected, the possibility of a sooner-than-expected Fed rate hike waned. This in turn made further room for emerging market investing. However, after a rally, many funds may now face overvaluation concerns. Also, with growth issues especially in the developed market, volatility levels will likely remain high in the marketplace (read: 4 Safe Ways to Invest in Emerging Market ETFs).

Plus, several emerging markets are commodity-rich. These markets are highly vulnerable to heightened volatility in the oil patch. All these issues explain why this low volatile and high dividend emerging market ETF will suit investors’ portfolio, going forward.

Will It Succeed?

The emerging market space is literally jam-packed with products. Within this pack, ETFs including iShares MSCI Emerging Markets Minimum Volatility ETF EEMV, WisdomTree Emerging Markets High Dividend Fund DEM, SPDR S&P Emerging Markets Dividend ETF EDIV, PowerShares S&P Emerging Markets Low Volatility Portfolio ETF EELV, Wisdom Tree Emerging Markets Quality Dividend Growth Fund DGRE and EGShares EM Quality Dividend ETFHILO may pose competition to the newly filed fund (see all emerging market ETFs here).

The above-said funds hover around more-or-less the same theme. However, LVHE covers all three necessities related to emerging market investing – low volatility, high dividend and protection against currency translation. This three-in-one combination may help LVHE to garner investors’ assets and wait out steep competition, if it gets an approval.

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ISHARS-EMG MKT (EEM): ETF Research Reports
 
LM-LO VOL HIDIV (LVHD): ETF Research Reports
 
WISTR-EM HI (DEM): ETF Research Reports
 
ISHARS-MS EMMV (EEMV): ETF Research Reports
 
SPDR-SP EM DVD (EDIV): ETF Research Reports
 
WISTR-EM QD (DGRE): ETF Research Reports
 
PWRSH-SP EM LVP (EELV): ETF Research Reports
 
LM-INT LV HD (LVHI): ETF Research Reports
 
EGS-LO VT EM DV (HILO): ETF Research Reports
 
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Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report