Investors who want to get a little more granular in their international investing may want to try this small-cap emerging markets dividend fund. With $1.67 billion in assets, most of the stocks in the fund have a market cap below $2 billion.
Unlike the larger-cap global ETFs, which generate return from broad global growth, DGS is driven more by what happens in specific developing economies, said Rosenbluth. But by investing only in dividend-paying companies, the ETF is less volatile than many emerging markets funds.
“Dividend companies tend to be less risky by nature, so it is less volatile than a pure emerging market small-cap strategy,” Rosenbluth said.
Investors are also gaining levels of exposure to some countries that deviate from the approach of traditional emerging markets funds. For example, DGS has a 24.84 percent allocation to Taiwan and 12.13 percent of its assets in South Africa — that’s double the exposure to these nations in the broad MSCI Emerging Markets Index. China is its second largest country allocation, with 17.26 percent, but that’s less than 28 percent exposure in MSCI Emerging Markets.
“You’re getting more exposure to these two countries and less to South Korea and China,” Rosenbluth said.
Unless you’ve taken an interest in small overseas companies, don’t expect to know the companies in this fund, but that’s OK — it has only a small weighting in any one business. South African holding company Truworths International is its largest investment, representing 1.17 percent of assets.
With a 0.63 percent expense ratio, it’s not as cheap as other ETFs, but it did well in 2017, posting a 33 percent return, and it’s already up 4.7 percent this year. It did well in 2017, but not better than the lower-fee core emerging markets ETFs, which feature expense ratios as low as one-fourth DGS. This is for someone who wants a little more diversification but also thinks that 2018 will be another good year. If investors are willing to take on risk, Rosenbluth said emerging markets are poised to continue strong performance. “They’re undervalued relative to U.S. equities, and we see them benefiting from strong global economic prospects.”
