Join        Login             Stock Quote

How To Discover The Top Dogs In Emerging Markets

 January 18, 2013 01:29 PM

Four decades ago, the "Dogs of the Dow" strategy was born. It's a simple concept where investors hold the ten highest dividend-yielding companies of the Dow Jones Industrial Average and rebalance annually. This strategy has paid off for the devoted "Dogs" investor: Since 1972, it has beaten the overall index by 3 percent, says UBS Investment Research.

At U.S. Global, we apply a similar approach to find growth and income in the faster growing emerging markets. We believe choosing the highest dividend-paying companies located in developing countries helps investors capture the significantly higher growth potential, while earning income in the form of historically outsized dividends.

We call these top dogs our "Show Dogs of the World," and they make up many of the holdings in our Global Emerging Markets Fund (GEMFX), the China Region Fund (USCOX) and the Eastern European Fund (EUROX).

[Related -Automating Ourselves To Unemployment]

This approach looks promising, especially after reviewing research done by UBS. Its new "Dogs of GEM" investment strategy picks 20 of the highest yielding companies among the 800 stocks of the MSCI Emerging Markets Index (MXEF) and refreshes the list annually.

Looking back five years, UBS finds the success rate is "striking," with its portfolio of high yielding emerging markets stocks "comfortably outperforming the MXEF index in almost all years on a total return basis." Since 2008, the "Dogs of GEM" had a compound annual growth rate of 24.1 percent compared to the emerging markets index rate of -0.6 percent.

[Related -Fed: Waiting For June… Or Godot?]

UBS's "Dogs of GEM" contains companies in several different developing areas, including Brazil, Korea, Poland and Taiwan, with dividend yields ranging from 10 to 22 percent. And, many of these companies are also owned in U.S. Global funds.

One overlapping holding that is in the EUROX portfolio is KGHM Polska Miedz (KGH:PW), a copper and silver producer located in Poland with a market capitalization of $8 billion. In 2012, the emerging markets best-of-breed company had a dividend yield of 14.9 percent and a total return of nearly 140 percent. It significantly outperformed U.S.-based Freeport-McMoRan (FCX), the largest publicly traded copper producer in the world, which fell 7 percent on a total return basis.

Expect an extra bite of volatility, but KGH is only one example of the outstanding growth opportunity in these emerging best of breeds.

See additional EUROX, GEMFX and USCOX holdings here.

Follow the Money

According to Morgan Stanley, $45 billion has been flowing into emerging markets funds since the beginning of September, when the third round of quantitative easing began. For those investors who want to "follow the smart money," investing in the "Show Dogs" in emerging markets appears to be a smart strategy for growth and income.

Please consider carefully a fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund's returns and share price may be more volatile than those of a less concentrated portfolio. The Eastern European Fund invests more than 25% of its investments in companies principally engaged in the oil & gas or banking industries.  The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund's performance more volatile.

The MSCI Emerging Markets Total Net Return Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in emerging market countries on a net return basis (i.e., reflects the minimum possible dividend reinvestment after deduction of the maximum rate withholding tax.)

in the China Region, Eastern European and Global Emerging Markets Funds as a percentage of net assets as of 12/31/2012: KGHM Polska Miedz: Eastern European Fund, 4.74%; Freeport McMoRan: 0.00%



Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageAutomating Ourselves To Unemployment

In this current era of central planning, malincentives abound. We raced to frack as fast we could for the read on...

article imageFed: Waiting For June… Or Godot?

The Federal Reserve left interest rates unchanged yesterday, as widely expected. But the possibility of a read on...

article imageThe Single Best Place To Invest Your Money For Retirement

It was never supposed to be this daunting. At least that's what we were read on...

article imageNegative Blowback From Negative Interest Rates

The Federal Reserve is widely expected to leave interest rates unchanged today. But perhaps standing pat read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.