Blog

DEM Beats Out VWO And EEM

June 08, 2012
Share:

For emerging markets investors looking for alternatives to broad, cap-weighted funds like VWO and EEM, a few dividend-weighted funds look promising.

A couple of weeks ago, I blogged about looking beyond the Vanguard MSCI Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets Index Fund (NYSE Arca: EEM) for emerging markets exposure.

Specifically, I mentioned a few single-country ETFs with potential for outperformance in the coming decade.

But for investors uncomfortable with jumping into country-specific ETFs and who prefer broad exposure, dividend-weighted funds like the WisdomTree Emerging Markets Equity Income Fund (NYSEArca: DEM), can offer a great alternative way to play emerging markets.

DEM differs from cap-weighted funds like VWO and EEM by not only weighting its constituents by annual dividends paid, but also by selecting its holdings based on dividend yields.

And true to its word, DEM sports an impressive dividend yield.

It might come as a surprise to you that DEM actually has a trailing 12-month yield of 4.45 percent and a 30-day SEC yield of 3.21 percent. In comparison, VWO and EEM have a trailing 12-month yield of 2.36 and 2.12 percent, respectively.

DEM's dividend-based methodology also leads to a unique portfolio with very different country exposures than what investors get in VWO or EEM via the MSCI Emerging Markets Index.

Country Weightings (in %)
EEM (MSCI EM Index) DEM (WisdomTree
EM Equity Income Index)
China 17.7 3.0
South Korea 15.1 3.9
Brazil 13.3 20.0
Taiwan 11.0 22.3
South Africa 8.1 10.2
India 6.3 0.0
Russia 5.9 1.6
Mexico 4.6 1.9
Malaysia 3.6 9.7
Indonesia 2.7 1.9
Other 11.7 25.5

Source: Issuer websites

 

But the real kicker here is that it's handily outperformed both VWO and EEM over one- and three-year periods in total returns—and in also in price returns.

 

1-Year Total Returns

Source: Bloomberg

 

DEM_vs_EEM_3_year

Source: Bloomberg

 

ETF.COM CHANNELS

Want to learn more about smart-beta ETFs? Check out our smart-beta guide, essentials library and ETF screener!

ETF DAILY DATA

A number of international equity funds—with and without currency hedges—led inflows on Friday, May 22. Total U.S.-listed ETF assets meanwhile held steady at $2.175 trillion.

'VGK' and 'VOO' paced Vanguard's issuer-leading inflows on Friday, May 22, as total U.S.-listed ETF assets remained at about $2.175 trillion.

ETF.COM ANALYST BLOGS

By Olly Ludwig

Yields will one day head higher, so is it time to get bond exposure outside the U.S.?

By Rachael Revesz

Stop dancing around the subject, call women ‘women’ and let’s be a more visible part of this industry.

By Olly Ludwig

It’s no secret that hedge funds love ETFs, but what’s less appreciated is that their love of ETFs will likely spell their demise.

By Olly Ludwig

Yes, bond yields are ticking higher these days, but it’s important to keep the whole yield-curve picture in mind.

ETF INDUSTRY PERSPECTIVE

By Nasdaq Global Indexes

Bond exposure or bond performance? Only defined maturity indexes provide the latter.

By Invesco PowerShares

Invesco PowerShares and Market Strategies International’s second annual survey provides vital insights about smart beta and ETFs overall.

By Invesco PowerShares

Investors are implementing smart-beta exchange-traded funds (ETFs) in their portfolios in a variety of ways and for different reasons.