If you've beeninvesting in countries such as South Africa and
Brazil, the phrase "bear market " comes to mind. Theirstock
markets are off more than 20% thisyear , and Russia, Mexico,
China and Turkey aren't far behind.
Some of those losses are attributable to weak foreign
currencies, but no matter the cause, many investors are
rethinking the wisdom of global investing. That's a shame,
because despite their volatility, these are the same countries
that are quickly transitioning from emerging economies into
Still, 2013 is shaping up to be a lost year.Analysts at
S&PCapital IQ expect aggregated profits acrossemerging
markets to fall roughly 4% in the 12 months ahead. Compare that
outlook to the expectations for modestgains here in the
Yet these analysts cite another stat you simply can't ignore:
Whereas U.S.stocks trade for 13.6 times projected profits,
thatmultiple is just 9.4 for emerging markets. Considering that
emerging markets typically sport more robust long-term growth
prospects than developed markets, that's led some to sense a
clear buying opportunity.
If you want to play the emerging markets angle but are daunted
by the risk, then focus one of our favorite exchange-traded
WisdomTree Emerging MarketsEquity ETF (
. It's a member of our "Forever Stocks" portfolio for a good
reason. Its focus ondividend payers should help keep it aloft in
the comingquarters , even if many economies slump.
How do we know this ETFwill survive this year's slowdown
intact? History already tells us so. Back in 2009, while the
globaleconomy was still reeling, thisfund 's payment streams took
only a moderate hit. The ETF's dividend distribution was reduced
from $1.90 a share in 2008 to $1.46 in 2009. And the dividend
rebounded nicely, approaching $2.28 a share in 2011.
Of course, the fresh economic weakness this year means that
the dividend will likely be below $2 a share, but as the global
economy stabilizes in 2014 and 2015, look for payouts to again
reach record heights. Our confidence in that outlook stems from
this portfolio's construction. Many of its holdings are leveraged
to rising middle classes. For example, more than 50% of the
companies in this portfolio are in financial services,
telecommunications and information technology.
Another important aspect of this fund is itsdiversification .
It holds over 200 high-yielding stocks, giving extra weighting to
higher yielders when it comes to for quarterlyrebalancing .
"Thanks to its dividend-weighting strategy, DEM has had a
high-quality portfolio relative to the cap-weighted MSCI Emerging
MarketsIndex ,"note analysts at Morningstar, who give this fund a
perfect five-starrating . The 0.63%expense ratio is roughly in
line with the peer group.
The Fresh Opening
I am talking about this "Forever"investment right now because it
has suddenly moved out of favor. I like to track
qualityinvestments like this, especially if they have a great
long-term positioning, whenever theirshares have been discounted.
And as this chart shows, investors are fleeing.
The key with a slumping investment is to wait for a base to
form. If this ETF stays in the $46 to $47 range in coming
sessions, it's a sign that sellers have largely been
Risks to Consider:
Emerging markets may not have yet hit bottom, so it's crucial
that you maintain a long-term view when buying into these
Action to Take -->
The recent slump in emergingmarket equities has made them even
more of a value when compared with U.S. stocks. Such a wide
disconnect in valuations only comes along once every five or 10
years, often creating a great entry point for investors who had
held off from taking on emergingmarket exposure .
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