WisdomTree's Emerging Markets ETF Stacks Up Nicely Against iShares' Equivalent

Six point five percent.

That's the headline number for the new WisdomTree emerging markets exchange-traded fund, which launched Friday on the New York Stock Exchange. The dividend-weighted fund, called the WisdomTree Emerging Markets High-Yielding Equity Fund (NYSE: DEM), tracks an index with an eye-popping gross yield of 6.47 percent.

Investors in the fund won't actually receive that payout. There are taxes to consider, not to mention the 0.63% expense ratio. But the net payout will still be high, and the fund will likely find a ready audience among investors eager for exposure to emerging markets, but worried about the potential risks and volatility.

"We believe the WisdomTree Emerging Markets High-Yielding Fund provides investors with a strong alternative to existing capitalization-weighted emerging markets ETFs," said Bruce Lavine, president & COO of WisdomTree. "Historically, some of our strongest back-tested performance came from using our dividend-weighted strategy in markets believed to be less efficient."

On a back-tested basis, the fund has a generally positive record against the benchmark MSCI Emerging Markets Index, although it lags on a 5-year basis.

The two underlying indexes aren't perfectly identical, however. The WisdomTree index significantly cuts back exposure to the Information Technology sector, which plays a large role in certain segments of the emerging markets economy. The country allocations also differ, with the WisdomTree fund significantly overweighting Taiwan, Thailand and Malaysia, while excluding China altogether, even though China nets an approximately 10% weight in the MSCI EM index.

WisdomTree's dividend-weighting methodology, combined with its decision to focus on the highest-yielding components, likely drives the differences.

The WisdomTree index has a slightly lower 3-year standard deviation than MSCI's EM index (16.7% vs. 17.3%). It also (not surprisingly) has a lower price-to-book ratio (2.25 vs. 2.6).

The WisdomTree ETF is also cheaper than the iShares MSCI EM ETF (AMEX: EEM), at 0.63% vs. 0.75% in expenses, but more expensive than the Vanguard Emerging markets ETF (AMEX: VWO), at 0.30%.