EDIV: Long-Term Return Not Attractive

seekingalpha06-15

tum3123 ETF Overview SPDR S&P Emerging Markets Dividend ETF (NYSEARCA:EDIV) owns a portfolio of emerging markets dividend stocks. The fund’s exposure to Taiwanese stocks is beneficial but its exposure...

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The fund’s exposure to Taiwanese stocks is beneficial but its exposure...</p>\n\n<a href=\"https://seekingalpha.com/article/4699415-ediv-long-term-return-not-attractive\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4581","symbol_name":"高盛持仓","start_time":0,"source_url":"https://seekingalpha.com/article/4699415-ediv-long-term-return-not-attractive","article_id":"2443651919","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1328310670/image_1328310670.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2443651919","pubTimestamp":1718452301,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"tum3123 ETF Overview SPDR S&P Emerging Markets Dividend ETF (NYSEARCA:EDIV) owns a portfolio of emerging markets dividend stocks. 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The fund’s exposure to Taiwanese stocks is beneficial but its exposure to Chinese stocks may continue to drag its performance. Volatility in these stocks may be quite high. The fund has not been able to deliver dividend growth in the past. Its long-term return has been very weak either. Therefore, we think investors may want to seek other dividend funds.   YCharts Fund Analysis EDIV’s Portfolio construction methodology EDIV tracks the S&P Emerging Markets Dividend Opportunities Index. This index consists of 100 emerging markets dividend stocks. To be included in this index, stocks must meet certain investability criteria. In addition, these stocks must have stable or increasing dividend growth in the past 3 years and be profitable in the past 12 month. This index is weighted based on trailing 12-month dividend yield, and each stock is capped at 3%, meaning no stock can have a weight greater than 3%. To ensure some levels of diversification, no country or sector can represent more than 25% of the total index after rebalancing. EDIV is concentrated in Taiwan and China Although EDIV limits each country to 25% of the portfolio, two countries still represent over half of its portfolio. As can be seen from the chart below, China and Taiwan represent about 26.5% and 26.1% of the total portfolio. The reason both countries each has weights over 25% is because the fund does not rebalance its portfolio every day but only semi-annually, once in January and another in July.   SPDR Because of EDIV’s concentration in China and Taiwan, we need to discuss about the growth prospect of these two nations. We will first discuss about China. China’s economy has not been performing well lately. The nation is going through a housing market burst and consumer demand has been lackluster. In other words, China is likely going through a period of economic deflation. This adjustment may be longer due to the burst of the massive housing market bubble. Not only that, the U.S. is tightening the restriction to prevent China from getting the most advanced semiconductor equipment and chips. This will limit the country’s ability to utilize technology to grow the economy. Looking forward, we think China's economy will remain weak in the near future. In contrast, Taiwan’s economy has been quite robust thanks to the country's high exposure to technology sector. The country has over 90% market share in producing the world’s most advanced chips. Major semiconductor companies in the world such as Nvidia (NVDA), Qualcomm (QCOM), Apple (AAPL), Broadcom (AVGO), etc. all rely on Taiwan’s advanced semiconductor manufacturing capabilities. As a result, Taiwan is expected to benefit from many technological megatrends in the upcoming decades. Below is a chart that compares two indices: MSCI Taiwan Index and MSCI China Index. As can be seen from the chart, there is a divergence between the two indices since late 2022. MSCI Taiwan Index has been moving upward. In contrast, MSCI China Index has been quite lackluster. Therefore, the bipolar prospect between Taiwan and China will likely impact EDIV’s performance. More specifically, Chinese stocks in EDIV’s portfolio may continue to drag the performance of EDIV in the next few years.   YCharts Emerging markets typically have higher volatility and downside risk Emerging markets typically have higher volatility than developed markets. As can be seen from the chart below, EDIV has higher downside risk and volatility than SPDR S&P Global Dividend ETF (WDIV) which focuses on both developed and emerging markets dividend stocks.   YCharts Why are emerging markets having higher volatility than developed markets? There are many reasons. First, political risk is much higher in emerging markets. We are not necessarily talking about wars (e.g. war between China and Taiwan), but also sudden policy changes. In the past few years, we have observed numerous times in the past that China changed its policy on certain industry very quickly such as restricting those under 18 years old to only able to play games for 90 minutes per day in 2019. Second, emerging market stocks are less well researched, and many of these stocks are not as transparent as developed market stocks. Third, corporate governance may be less rigid in emerging markets stocks than developed markets stocks. Therefore, surprises can happen and cause stocks to move quickly. Fourth, these stocks are also exposed to foreign currencies risk. Dividend growth not strong In general, we prefer to invest in stocks of ETFs that can grow their dividends over time and not just remain the same. The reason is simple, the dividends we received must be able to grow beyond inflation rate. Otherwise, our purchasing power will diminish over time. Using this mindset, let us look at EDIV’s dividend payments in the past 10 years. As can be seen from the chart below, EDIV’s dividend paid in the past decade has been between the range of $0.15 ~ $1.2 per share depending on the season. We can see that some years such as between 2012~2014, EDIV has much higher dividend payments. In contrast, the years between 2018~2021 has much lower dividend payments.   YCharts This fluctuating dividend payments means EDIV’s portfolio construction methodology appears to be unable to guarantee dividend growth over time. For reader’s information, EDIV’s current 12-month dividend yield is about 4.2%. This is in line with its past 10 year average.   YCharts Long-term total return not attractive Besides receiving dividends, the purpose of owning dividend ETFs is also to enjoy good long-term returns. However, EDIV’s long-term return appears not attractive at all. Below is a chart that compares EDIV’s total return (including dividends) with Schwab U.S. Dividend Equity ETF (SCHD) in the past 10 years. As can be seen from the chart, EDIV delivered a total return of only 30.5% in the past 10 years. This is very low considering that 10-year treasury yield is currently about 4.2%. In contrast, SCHD which focuses on U.S. dividend stocks has delivered a total return of 177% in the past 10 years, much more superior than EDIV.   YCharts Investor Takeaway EDIV has not been able to grow its dividend over time and its total return in the past 10 years has been quite lackluster. Although EDIV’s exposure to Taiwanese stocks is quite beneficial, its exposure to Chinese stocks may continue to drag its performance in the next few years. Due to emerging market volatilities, we do not think investors need to own this fund at all. Investors may want to seek other funds instead.  Additional Disclosure: This is not financial advice and that all financial investments carry risks. Investors are expected to seek financial advice from professionals before making any investment.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2443651919"}