The proverbial they say 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 (NYSE:
) 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 percent
through April 10 compared to 4.3 percent 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 period."
The $1.55 billion WisdomTree Emerging Markets SmallCap
Dividend Fund allocates a combined 42 percent of its weight to
financial services and industrial names with consumer
discretionary, materials and technology also receiving
With developing world small-caps performing better than many
expected, DGS is higher by six percent 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 percent 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
percent 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 percent of DGS' 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
DGS, which debuted in October 2007, has a 30-day SEC yield of
2.57 percent and annual expense ratio of 0.64 percent.
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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