Editor's Note: This content was originally published on
by The ETF Professor, Benzinga Staff Writer.
The proverbial "they" say that it has been a bad year for emerging
markets equities and
. They are correct, but only to a limited extent as it has been the
largest developing markets and the corresponding ETFs that
have been real laggards
By focusing on large-cap emerging markets stocks and some of the
ETFs that hold those shares, plenty of investors would be lead to
believe 2013 has been a dreadful year in which to be long
developing markets. They may not know that the opposite is true of
emerging markets small-caps. The
WisdomTree Emerging Markets SmallCap Dividend Fund
(NYSEARCA:DGS ) proves as much.
The WisdomTree Emerging Markets SmallCap Dividend Fund's underlying
index, the WisdomTree Emerging Markets SmallCap Dividend Index (
), offers exposure to all 10 major sectors (financial services,
industrials, discretionary, etc.), and in all 10 cases the index
has outpaced large-cap an equivalent large-cap index.
For example, telecommunications shares in the WisdomTree Emerging
Markets SmallCap Dividend Index were up 16% through April 10
compared to 4.3% loss for the same sector in the
MSCI Emerging Markets Index
according to WisdomTree data
Consumer staples and health care names in the small-cap index
sported double-digit returns while the large-cap equivalents were
only modestly higher. Large-cap emerging markets industrials,
materials and technology names featured in the MSCI Emerging
Markets Index traded lower, but those sectors in the WisdomTree
Emerging Markets SmallCap Dividend Index rose.
"The mid- and small-cap stocks in the WisdomTree Emerging Markets
SmallCap Dividend Index have outperformed their large-cap peers,
represented by the MSCI Emerging Market Index, in all 10 sectors,"
said WisdomTree Research Director Jeremy Schwartz in a research
note. "Every sector in the WisdomTree Index has posted a positive
return year-to-date, while fewer than half the sectors of the MSCI
Emerging Markets Index saw positive performance over the same
The $1.55 billion WisdomTree Emerging Markets SmallCap Dividend
Fund allocates a combined 42% of its weight to financial services
and industrial names with consumer discretionary, materials and
technology also receiving double-digit allocations.
With developing world small-caps performing better than many
expected, DGS is higher by 6% year-to-date while some of the
marquee large-cap emerging markets ETFs are in the red.
Surprisingly, DGS sports volatility of just 11.3% this year, making
it about 200 basis points less volatile than two of its most
popular large-cap rivals.
DGS has been able to deliver for investors this year due to another
reason: country mix. Yes, laggard markets such as South Korea,
South Africa, and China are featured within the fund. However,
Thailand, Malaysia, and Turkey combine for over 28% of the ETF's
weight. Throw in Indonesia and the Philippines and that means
some of this year's better emerging markets
account for over 35% of DGS's weight.
"The positive economic growth in emerging market economies is
translating into a growing class of citizens with more
discretionary income," said Schwartz. "We expect this trend will
continue in emerging market countries, and it is important to focus
on this new class of emerging consumers. Large-cap companies are
important to consider, but many are concentrated in the energy and
financial sectors and are more dependent on global growth. To
capitalize on this growing emerging consumer, we think one strategy
is a focus on small-cap companies that are often more dependent on
the growth from their own country and citizens."
DGS, which debuted in October 2007, has a 30-day SEC yield of 2.57%
and annual expense ratio of 0.64%.
Below, find some more great ETF and market content from
King of Low Vol ETFs Tops $5B in AUM
Equal-Weight ETF Trounces Traditional S&P 500 Peers
Will the Rainy Spring Lower Corn Yields?
Benzinga Pro covers this and all market news in real time. Get
your free trial