A Winning Emerging Markets Strategy

On their own, dividends and the size factor can reward investors with both developed and emerging markets equities. The combination of dividends and smaller stocks can be particularly potent with emerging markets stocks, but few exchange traded funds combine those concepts under the same umbrella. 

One emerging markets ETF that marries dividends and small-caps is the WisdomTree Emerging Markets SmallCap Dividend Fund DGS. DGS, which turns 11 in October, follows the WisdomTree Emerging Markets SmallCap Dividend Index. That benchmark's holdings “are weighted in the index based on annual cash dividends paid,” according to WisdomTree.

As of March 13, that index had a dividend yield of 3.89 percent. By comparison, the trailing 12-month dividend yields on the MSCI Emerging Markets Index and the Russell 2000 Index are just 1.83 percent and 1.28 percent, respectively.

A Long Track Record

DGS has developed an impressive long-term track record. Since its inception in August 2007, the ETF's underlying index has delivered nearly double the returns of MSCI Emerging Markets SmallCap Index. Over the past year, three years, five years and decade, the benchmark DGS tracks has topped the MSCI Emerging Markets SmallCap Index.

“Over the 10-year period ending Dec. 31, 2017, the WisdomTree Emerging Markets SmallCap Dividend Fund has been one of the best-performing funds in the Morningstar diversified emerging markets category — beating 97 percent of its mutual fund and ETF peers,” according to WisdomTree.

Over the past three years, DGS has outpaced the MSCI Emerging Markets Index and the Russell 2000 Index while being less volatile than emerging markets large-cap stocks.

Vital Statistics

DGS allocates over 42 percent of its combined weight to Taiwan and China, two of the more dependable dividend growth markets among developing economies. South Africa and South Korea combine for over 21 percent of the ETF's geographic exposure. Overall, 19 countries are represented in DGS.

Technology is the largest sector exposure in DGS at 17.4 percent. Consumer discretionary and industrial stocks combine for over 34 percent of the fund's weight.

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