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Emerging Markets Perk Up on a Weakening Dollar and Less Restrictive China

  • Last week, the ALPS Emerging Sector Dividend Dogs ETF (EDOG) outperformed broader global equities markets as the US dollar continues to weaken amid optimism around China’s less restrictive COVID-19 measures. Additionally, a number of EDOG’s holdings had positive news stories last week that drove performance.

  • Within EDOG’s Communication Services sector, cellular network provider, Vodacom Group Ltd (VOD SJ, 1.94% weight*), rallied 4.77% last week on the back of a potential acquisition from Abu Dhabi-based, Emirates Telecom Group, where a number of synergies from Vodacom’s African footprint could benefit both communications providers. Additionally, Philippines-based digital services provider, PLDT Inc. (TEL PM, 2.11% weight*), gained nearly 8% last week on a follow-through rally from its recent earnings beat, where the company cited strong growth within its datacenters and broadband buildout in the Philippines.

  • EDOG’s overweight to cyclical sectors (Energy & Materials) outperformed last week with South African mining company, African Rainbow Minerals Ltd. (ARI SJ, 2.19% weight*), rallying nearly 6% after consumer confidence in South Africa posted a strong recovery along with a rise in employment growth, driving the South African Rand higher. South African energy producer, Exxaro Resources Ltd. (EXX SJ, 1.91% weight*), also jumped 3.57% last week after the company increased full-year revenue guidance on a rise in coal sales volumes and expectation of coal production to increase 3% for the year.

  • EDOG’s China-based stocks (nearly 10% of the fund*) continued their momentum last week, where potential reopening news and the discontinuation of COVID-19 testing in public venues extended their month-long rally. Catalyzed last week by the potential jump in China’s manufacturing and economic activity from its less restrictive COVID-19 policies, Zoomlion Heavy Industry Co. (1157 HK, 2.28% weight*), a construction equipment manufacturer, rose 8.98%, while Legend Holdings Corp. (3396 HK, 1.97% weight*), an IT developer for Chinese financial firms, and China Railway Signal (3969 HK, 2.09% weight*), a railroad systems manufacturer, both gained 7.54% and 4.85%, respectively. 

“The market is likely to be volatile amid a bumpy transition period ahead, but we also see opportunities in sectors that will directly benefit from China’s shift to eventual reopening, including pharma and medical equipment, consumer, internet, transportation, capital goods and materials.”

– Mark Haefele, UBS Global Wealth Management CIO, December 9, 2022

The Multiple Expansion Tide May Be Coming for EDOG and Emerging Markets 
  • A strong US dollar and global hyperinflation have led emerging markets (EM) stocks to underperform US stocks in 2022, mostly on multiple contraction. Despite the current economic uncertainty among emerging markets, positive indicators including rising EM wages and signs of global disinflation have contributed to a snapback in EM performance. Furthermore, emerging market equities (as measured by the MEMMN Index) are priced at a significant discount compared to broad US equities, boasting a price-to-earnings (P/E) ratio of 10.48x compared to the S&P 500’s P/E of 18.46x. Impressively, EDOG’s high-yielding portfolio with a tilt to cyclical value EM stocks exhibits a P/E of 8.42x, along with a higher yield of 4.76%.

  • While a sustained rally in emerging markets may depend on a continuation of improving global economic indicators, the easing of COVID-19 restrictions in China could continue to weaken the US dollar and provide for multiple expansion in EM stocks in 2023. Specifically, an uptick in manufacturing output in China may disproportionately benefit global cyclical value stocks on rising energy, materials and industrial goods demand.  20221212-chart
  • The recent fall in the US Dollar has coincided with a sharp uptick in news regarding China’s reopening, which could materially benefit emerging market stocks as defensive investors may continue to reduce their bullish bets on the US dollar.

  • Year-to-date, EDOG has substantially outperformed broader EM indices by nearly 600 basis points (bps) as its cyclical value tilt to Energy, Materials and Industrials sectors has benefitted the fund due to elevated global inflation.  

* Weight in EDOG as of 12/09/2022

Performance Summary
  1 Week YTD 1 Y 3 Y
ALPS Emerging Sector Dividend Dogs ETF (EDOG)  -0.65% -10.92% -9.31% 13.50%

S-Network Emerging Sector Dividend Dogs Index - NTR 
-0.64% -10.35% -8.44% 16.30%
Morningstar Emerging Markets Index - NR     0.36% -16.67% -17.45% 4.35%


Source: Bloomberg L.P., as of 12/09/2022

Performance data quoted represents past performance. Past performance is no guarantee of future results so that shares, when redeemed, may be worth more or less than their original cost. The investment return and principal value will fluctuate. Current performance may be higher or lower than the performance quoted. For current month-end performance call 1-866-759-5679 or visit www.alpsfunds.com. Performance includes reinvested distributions and capital gains.

For standardized performance please click here.

 

Top 10 Holdings

Turkcell Iletisim Hizmetleri AS     2.50%   Enel Chile SA 2.36%
Enka Insaat ve Sanayi AS 2.41%   Ford Otomotiv Sanayi AS     2.34%
Powszechny Zaklad Ubezpieczen SA 2.41%   Kalbe Farma Tbk PT 2.33%
El Puerto de Liverpool SAB de CV 2.40%   Kimberly-Clark de Mexico SAB de CV 2.28%
Eregli Demir ve Celik Fabrikalari TAS 2.39%   Zoomlion Heavy Industry Science and Technology Co Ltd 2.28%


As of 12/09/2022, subject to change

Important Disclosures & Definitions

An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus containing this and other information, call 1-866-759-5679 or visit www.alpsfunds.com. Read the prospectus carefully before investing.

Shares are not individually redeemable. Investors buy and sell shares on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 5,000, 25,000 or 50,000 shares.

Performance data quoted represents past performance. Past performance is no guarantee of future results; current performance may be higher or lower than performance quoted.

All investments are subject to risks, including the loss of money and the possible loss of the entire principal amount invested. Additional information regarding the risks of this investment is available in the prospectus.

The Fund is subject to the additional risks associated with concentrating its investments in companies in the market sector.
Diversification does not eliminate the risk of experiencing investment losses.

The Fund’s investments in non-US issuers may involve unique risks compared to investing in securities of US issuers, including, among others, less liquidity generally, greater market volatility than US securities and less complete financial information than for US issuers. In addition, adverse political, economic or social developments could undermine the value of the Fund’s investments or prevent the Fund from realizing the full value of its investments. Finally, the value of the currency of the country in which the Fund has invested could decline relative to the value of the US dollar, which may affect the value of the investment to US investors.  

The Fund employs a “passive management” - or indexing - investment approach and seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index. Unlike many investment companies, the Fund is not “actively” managed. Therefore, it would not necessarily sell or buy a security unless that security is removed from or added to the underlying index, respectively.

Basis Point (bps): a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.

Price/Earnings (P/E) Ratio: a valuation ratio of a company’s current share price compared to its per-share earnings.


Morningstar Emerging Markets Index: captures the performance of the stocks located in the emerging countries across the world. Stocks in the index are weighted by their float capital, which removes corporate cross ownership, government holdings and other locked-in shares. 

S-Network Emerging Sector Dividend Dogs Index (EDOGX): a rules-based index intended to give investors a means of tracking the overall performance of the highest dividend paying stocks in the S-Network Emerging Markets Index, a universe of mainly large capitalization stocks domiciled in emerging markets on a sector-by-sector basis. Emerging market countries are countries that major international financial institutions, such as the World Bank, generally consider to be less economically mature than developed nations. 

One may not invest directly in an index.

ALPS Advisors, Inc. is affiliated with ALPS Portfolio Solutions Distributor, Inc. 

ALPS Portfolio Solutions Distributor, Inc. is the distributor for the Fund.

Not FDIC Insured • No Bank Guarantee • May Lose Value

DOG001253  03/13/2023

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