DEM Beats Out VWO And EEM

June 08, 2012

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



Source: Bloomberg



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