This Emerging Markets ETF Has Some Juice

This year has brought some relief for emerging markets investors. Part of that relief is coming in the form of resurgent emerging markets dividend exchange-traded funds, including the WisdomTree Emerging Markets Eqty Incm Fd DEM.

Emerging markets dividend strategies were disappointing, surprising laggards as emerging markets ETFs of all stripes stumbled over the past few years. That trend is reversing for the better this year as DEM is up nearly 7.8 percent, an advantage of about 380 basis points over the MSCI Emerging Markets Index.

Dividend Emphasis

DEM's underlying index, the WisdomTree Emerging Markets High Dividend Index, makes good on the high dividend promise with a dividend yield of over 6.3 percent. The MSCI Emerging Markets Index has a trailing 12-month yield of 2.65 percent.

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Although emerging markets equities are rebounding this year, the valuations on the asset class still look favorable compared to developed markets, particularly U.S. stocks. That value opportunity is made all the more compelling with DEM's dividend emphasis.

“In fact, we believe that there is deep value to be found in the emerging markets. And we see an interesting way to capture it: tax loss harvesting into DEM, the WisdomTree Emerging Markets High Dividend Fund (which is designed to track the performance of the WisdomTree Emerging Markets High Dividend Index),” said WisdomTree in a recent note.

“While the convention is that year-end is the time for tax planning, we see market volatility as an opportunity to be more tactical. When we see significant downward moves—such as the current environment in EM equities—we think it makes sense to rotate strategies while booking a loss.”

Commodities Component

There is a rebounding commodities component to DEM as Russia, Brazil and South Africa combine for over 26 percent of the ETF's weight. Additionally, the energy and materials sectors combine for over 30 percent of DEM's weight.

As a result of its often overweight position in Russian stocks and commodities stocks, DEM's underlying index has annualized volatility of over 21 percent since inception.

“As DEM has tracked the WisdomTree Emerging Markets High Dividend Index since its June 16, 2007, inception, it’s worth noting that this Index has hunted for valuation opportunities on an annual basis, taking the top 30 percent of dividend-paying EM securities¹ and weighting them based on annual cash dividends paid. Currently, the Index displays a 6.33 percent 12-month trailing dividend yield and a price-to-earnings ratio (P/E) of 11.04x,” according to WisdomTree.

Disclosure: Todd Shriber owns shares of DEM.