WisdomTree Emerging Markets Equity Income Fund (DEM) finds itself at the crossroads of two hot investment trends. Dividend ETFs are popular with investors looking for income in the stock market, while emerging market funds are also in demand with investors on the hunt for stronger economic growth.
"There are interesting intricacies to this WisdomTree dividend strategy, especially when applied to the emerging markets, which is a very diverse universe. First, Taiwanese and Brazilian companies tend to be higher dividend payers due to tax rules and laws that support dividend payouts. As a result, emerging-markets dividend funds, including DEM, tend to have substantial exposure to these countries," Patricia Oey wrote for Morningstar.
Analysts are expecting emerging markets to be standout performers during the second half of 2013, reports Max Isaacman for MinyanVille. This sector was not a stellar performer in 2012, not to mention over the past five years, however, when measured over the past decade, emerging markets outperformed the S&P 500 by a long shot. According to WisdomTree, 2012 was a high payout year for emerging markets. Historically, after a high dividend year, the following is an outperforming year, reports Isaacman.
DEM has a value-tilt, which is conducive to the "buy low, sell high" concept, during annual re-balancing. The 200 stock index is weighted by aggregate annual cash dividends paid, something different than a traditional market-cap weighted method.
DEM has upped the amount of exposure that it gives to Russia, about 13% of the portfolio. The classic iShares MSCI Emerging Markets ETF (EEM) allocates about 6% to Russia. The Vanguard Emerging Markets ETF (VWO) also allocates about 6% to Russia. Over the past year Russia has influenced state-owned firms to pay out at least 25% of profits as dividends, reports Oey. This is a benefit to investors should this mandate stay in place, as valuations for Russian companies are low. However, this can also be a negative since the risk factor is higher when the companies are tightly controlled by the government.
DEM yields 5.73% and costs 0.63%. EEM yields 1.72%and costs 0.67% and VWO yields 4.31% and costs 0.18%.
WisdomTree Dividend Weighted Emerging Markets ETF
Tisha Guerrero contributed to this article.
Full disclosure: Tom Lydon's clients own EEM and DEM.