Virtus Launches Emerging Markets Dividend ETF (VEM) Amid Strong EM Momentum

The Virtus Emerging Markets Dividend ETF (VEM) launched on February 3, 2026, represents Virtus Investment Partners’ continued expansion into actively managed exchange-traded funds [1][2]. The fund employs a distinctive dual-component investment methodology that combines artificial intelligence-powered sentiment analysis with a proprietary quantitative stock-selection model [1]. This technology-enabled approach screens potential holdings based on multiple factors including dividend sustainability, payout history, and growth characteristics, providing a systematic framework for identifying quality dividend payers in emerging markets.

The fund ties its investment universe to the MSCI Emerging Markets Index but applies an active management overlay designed to capitalize on opportunities that passive strategies may overlook [1][2]. Current portfolio positioning emphasizes two sectors that Virtus believes offer the optimal combination of income generation and structural growth potential: Financials, including banks and financial institutions that traditionally offer attractive dividend yields, and Information Technology, led by the fund’s largest holding—Taiwan Semiconductor Manufacturing Co. (TSM) [1]. With an expense ratio of 0.49% and initial assets under management of $2.48 million, the fund positions itself as a premium actively managed option within the emerging markets dividend space [2].

The VEM launch occurs within a broader strategic context at Virtus Investment Partners, where the ETF platform has emerged as a critical growth vector amid challenging conditions in traditional open-end funds [6][7]. During Q4 2025, Virtus’s ETF business demonstrated exceptional performance, with ETF assets under management reaching $5.2 billion—a 72% year-over-year increase and a $500 million sequential rise [6][7]. Net flows into ETFs totaled $600 million during the quarter, while the overall firm experienced $8.1 billion in net outflows from open-end funds, making ETFs “the only product line with positive flow” [6].

Management has indicated that VEM represents part of a planned rollout of “several additional active ETF launches over the next two quarters,” signaling sustained commitment to building out the ETF platform [6][7]. This strategic pivot responds to the acknowledgment from CEO George Aylward that “quality-focused equity strategies, representing about half of total AUM, remained out of favor,” driving the firm to emphasize income-generating products and innovative ETF solutions [2]. The distribution strategy focuses on expanding ETF availability across wealth-management channels and retail separate accounts, leveraging the ETF structure as a complement to Virtus’s broader expansion into private markets through investments in Keystone National Group and Crescent Cove.

The timing of VEM’s launch appears strategically favorable given the robust performance and favorable investor sentiment surrounding emerging markets assets [3][4]. The year 2025 marked a exceptional period for emerging markets, with EM equities delivering a remarkable 33.6% gain—significantly outperforming the S&P 500’s 17% return and the MSCI World’s 21% increase—the best year for EM relative to developed markets since 2017 [3]. Record inflows reinforced this momentum, with EM debt and equity exchange-traded products drawing $152 billion and $103 billion respectively during 2025 [4].

Looking ahead, consensus forecasts project 21% EPS growth for EM equities in 2026, substantially higher than the 15% expected for the United States and 13% for developed markets overall [3]. State Street Global Advisors has noted that global investors remain underweight EM equities, suggesting potential for continued capital flows as positioning normalizes [3]. The emergence of 2026 has seen emerging markets continue their upward trajectory, with approximately 5% year-to-date gains into early 2026 [3]. This combination of strong historical performance, positive earnings expectations, and underowned status creates a supportive backdrop for a new actively managed EM product targeting dividend income.

VEM distinguishes itself within the competitive emerging markets ETF landscape through its AI-driven active management approach, a differentiating factor relative to passive competitors [1][2]. While established funds such as the SPDR S&P Emerging Markets Dividend ETF (EDIV) offer passive EM dividend exposure with similar expense ratios of 0.49%, VEM’s technology-enabled stock selection and sentiment analysis capabilities represent a distinct value proposition [9]. The fund aims to identify sustainable dividend payers ahead of broader market recognition, potentially capturing alpha that passive strategies cannot access.

However, this differentiation comes with execution risk, as the AI-driven approach remains unproven in live market conditions. The success of VEM’s investment methodology depends on the model’s ability to consistently identify companies with durable payout characteristics and emerging growth potential within the emerging markets universe. Unlike passive funds that simply track an index, VEM’s active overlay introduces manager risk—underperformance versus benchmark expectations could trigger investor outflows, particularly given the 0.49% expense ratio premium relative to broad-market passive alternatives.

The VEM launch responds to sustained investor appetite for income-oriented investment solutions, evidenced by broader trends in the options income ETF category [5]. The year 2025 saw 60 new options income ETF launches, attracting $2.6 billion in first-year flows, demonstrating robust demand for yield-generating strategies across the ETF landscape [5]. Within the emerging markets dividend segment specifically, EDIV currently offers a 4.35% dividend yield with quarterly payments, establishing a competitive benchmark that VEM must approach or exceed to attract yield-focused investors [9].

The emphasis on quality dividend payers—companies with sustainable payout histories rather than simply high-yield stocks—positions VEM within a risk-conscious income framework that may appeal to investors seeking both capital preservation and yield generation. This approach aligns with Virtus’s broader strategic direction toward quality-focused strategies, even as management acknowledges that such strategies have recently been “out of favor” in broader equity markets [2].

VEM enters a competitive landscape dominated by established low-cost passive alternatives that create significant pricing pressure [9]. The Vanguard FTSE Emerging Markets ETF (VWO) offers broad EM exposure at just 0.08% expense ratio, while the iShares Core MSCI Emerging Markets (IEMG) provides similar comprehensive exposure at 0.09% [9]. Even factor-based alternatives like the iShares MSCI Emerging Markets Min Vol Factor ETF (EEMV) charge only 0.25%—half of VEM’s expense ratio—while offering dividend yield of approximately 2.5% [10].

The pricing challenge is substantial: VEM must demonstrate meaningful performance alpha to justify its near-five-times premium over the lowest-cost broad-market competitors. Initial assets of $2.48 million represent a modest starting point compared to established competitors, creating operational inefficiency and raising questions about long-term viability unless AUM scales meaningfully. The competitive assessment suggests VEM’s success will depend heavily on delivering consistent outperformance that justifies the active management fee structure.

: The AI-driven investment approach, while innovative, carries significant execution uncertainty. The fund’s technology-enabled stock selection and sentiment analysis remain unproven in live market conditions, and there is no historical performance data to validate the model’s effectiveness in identifying sustainable dividend payers in emerging markets. Underperformance could trigger outflows, particularly given the premium expense ratio relative to passive alternatives.

: The modest initial AUM of $2.48 million creates operational challenges and raises questions about the fund’s long-term sustainability. Achieving economies of scale will be essential for viability, and failure to attract meaningful inflows could result in potential closure or restructuring down the line.

: Established low-cost competitors including VWO (0.08%), SCHE (0.11%), and IEMG (0.09%) offer compelling alternatives for cost-conscious investors. Even EDIV, which directly competes in the EM dividend space, charges the same 0.49% expense ratio but with a proven track record [9]. VEM’s ability to justify its active management premium remains uncertain.

: The Trump administration’s tariff policies on China, Canada, and Mexico create near-term uncertainty for emerging markets investments generally, potentially affecting the valuations and dividend sustainability of companies within VEM’s investment universe [8]. Currency volatility inherent in emerging markets investments adds additional risk, particularly relevant for dividend-focused strategies where yield calculation depends on currency conversion.

: With emerging markets having delivered exceptional 33.6% returns in 2025 and continuing to rise in early 2026, combined with consensus EPS growth expectations of 21% for 2026, the macroeconomic backdrop remains favorable for EM equity exposure [3]. Strong momentum and underweight investor positioning suggest potential for continued capital flows into the asset class.

: The launch of VEM positions Virtus to capture investor demand for actively managed, income-oriented emerging markets exposure—a segment underserved by passive alternatives. With 60 new options income ETF launches attracting $2.6 billion in 2025, the broader trend toward yield-generating strategies creates a receptive market for innovative dividend-focused products [5].

: Virtus’s demonstrated success in building its ETF business—with 72% YoY AUM growth and $600 million in quarterly net inflows—provides a strong foundation for scaling new product launches [6][7]. Management’s commitment to “several additional active ETF launches over the next two quarters” signals sustained investment in platform development [6].

The Virtus Emerging Markets Dividend ETF (VEM) launch represents a strategically timed entry into an expanding market segment, leveraging AI-driven active management to differentiate from passive competitors while capitalizing on renewed investor interest in emerging markets following a stellar 2025 performance. The fund’s 0.49% expense ratio positions it at parity with EDIV, the primary passive competitor in the EM dividend space, but significantly above broad-market passive alternatives—a pricing strategy that requires the AI-driven model to demonstrate meaningful alpha generation to justify the premium. For Virtus Investment Partners, VEM continues execution on an ETF growth strategy that generated robust Q4 2025 results, serving as a critical counterweight to broader outflows from traditional open-end products. Success will depend on the model’s ability to deliver consistent performance while building sufficient scale to ensure long-term viability against entrenched low-cost competitors.