In the past 5 years, the market capitalisation-weighted MSCI Emerging Markets Index has been driven by the rally in hyper-growth stocks that have benefited from the structural shift in the global economy. Similar to the highly covered FAANG complex in US equites, the MSCI Emerging Markets Index has experienced a concentration in return contribution from stocks in the consumer discretionary ( Alibaba ), technology (Taiwan Semiconductor, Samsung) and communication services (Tencent) sectors.

Much of the strong performance for the MSCI Emerging Markets Index is attributable to the large position of Alibaba Group in the market-capitalisation weighted index and its strong performance during the referenced time period. Over the 5 years from 31 January 2017, Alibaba made up 24% of the market benchmark on average and is up 107%. This position contributed 24.62 of the 57.56 estimated nominal return. Alibaba does not pay a dividend and has traded at an average P/E of 36.7x and P/B of 6.5x over the last 5 years. In retrospect, the environment was beneficial for indices holding high growth stocks, such as Alibaba .

Philippe Roset, Head of Northern Europe & EMEA ESG Coordination at State Street SPDR ETFs: “In the 2 years since the SPDR® S&P® Emerging Markets Dividend Aristocrats UCITS ETF switched to tracking the newly created Dividend Aristocrats® Index (February 2020), the strategy of State Street SPDR ETF has performed neutral with the market benchmark MSCI Emerging Markets Index, with both advancing by 5.5% over that time. On a year-to-date basis, the SPDR® S&P® Emerging Markets Dividend Aristocrats UCITS ETF has outperformed the market benchmark MSCI Emerging Markets Index by 4.07%. Much of the positive contribution can be explained by the more recent reversal in the growth/value trade, as well as strong stock selection in real estate, where the Dividend Aristocrats standard appears to be beneficial.”

Figure 3: Dividend Yield History (Back Test)

“The focus of Dividend Aristocrats on dividend stability would have decreased the historical yield of the portfolio – Dividend Aristocrats is arguably a more conservative approach – but the new index would still have provided a yield premium to the market, on a back-tested basis (see Figure 3). The index yield premium has expanded since the beginning of 2020. The S&P Emerging Markets High Yield Dividend Aristocrats® Index also offers a significant amount active value factor exposure. Value is the third strongest exposure after yield and size (see Figure 4),” Roset explains.