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This emerging markets ETF aims to reduce concentration risk

The ALPS Emerging Sector Dividend Dogs ETF caps any single holding at 4.95% and limits country exposure to 11.20% to avoid heavy bets on a few stocks.

Reported · Written up by our desk · ETFs

Emerging markets equities and the ETFs tracking them have shown strong performance this year, but one risk stands out, many index-based funds can become concentrated bets on a small set of stocks and countries, ETF Trends notes.

The article points to the MSCI Emerging Markets Index as an example, saying it allocates 15% weight to Taiwan Semiconductor (TSM), with Samsung Electronics and SK Hynix combining for another 12.6%. It also says the index devotes almost 42% of its weight to tech stocks, and more than 48% of its portfolio to Taiwanese and South Korean equities.

As an alternative, ETF Trends highlights the ALPS Emerging Sector Dividend Dogs ETF (EDOG), which tracks an index that selects the five highest-yield stocks from 10 sectors, excluding real estate. The piece says the 10 sectors are equally weighted, and that diversification is meant to help when passive emerging markets funds are highly concentrated.

EDOG is described as limiting concentration, no holding receives more than 4.95% of weight, and no geographic exposure exceeds 11.20%. The article adds context from Morningstar’s Gregg Wolper, arguing that matching the top three stocks’ index weights would conflict with common risk controls that keep individual positions at 5% or less.

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