The Tide Can Continue Turning for Emerging Markets Stocks

After years of lagging U.S. stocks, emerging markets equities and the related ETFs shed that dubious distinction in a big way in 2025.

Count the ALPS Emerging Sector Dividend Dogs ETF (EDOG) as among the ETFs getting in on that act. EDOG, which follows the S-Network Emerging Sector Dividend Dogs Index and turns 12 years old in March, is higher by nearly 15% year-to-date. The ETF could build on its 2025 success in 2026 because one of the primary headwinds that restrained emerging markets stocks, dilution, evaporated.

As Matteo Anelli, Trustnet deputy editor, pointed out, years of emerging market equity index dilution — too many new entrants being included in the benchmarks — has ground to a halt. That could favor assets such as EDOG because companies in developing markets can refocus their priorities on issues that could bear fruit for investors.

Shareholder Rewards Could Be in Focus

With dilution in the rearview mirror, some emerging markets companies could lean into shareholder rewards — a theme that’s obviously a point of emphasis for EDOG.

“With issuance collapsing and companies shifting towards buybacks and dividends, that headwind is now fading and could soon become a tailwind,” reported Anelli. “Emerging markets did not lag because their companies grew more slowly or became less profitable, but because waves of IPOs and index inclusions, particularly in China, expanded the benchmark faster than earnings.”

China, which accounts for 10.61% of EDOG’s roster, is one of the leaders when it comes to renewed prioritization of shareholder rewards.

“Equally important is how companies are behaving. After years of issuing shares, Chinese corporates are shrinking share counts and returning cash. Buybacks last year hit record highs, double the year before, and dividends followed a similar pattern,” according to Trustnet.

Another factor that could bode well for EDOG in 2026 is the ETF’s status as a fund that equally weights sector exposures. That trait that could prove compelling at a time when some investors are concerned about concentration risk in cap-weighted emerging markets indexes. Additionally, EDOG defrays some of the geographic risk associated with cap-weighted emerging markets ETFs, the bulk of which devoted roughly a third of their portfolios to China stocks.

VettaFi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for EDOG for which it receives an index licensing fee. However, EDOG is not issued, sponsored, endorsed, or sold by VettaFi. VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of EDOG.

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