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Outperforming WisdomTree ETF for Emerging Markets May Get Riskier


The dividend approach used by WisdomTree Emerging Markets Equity Income (DEM) has helped it outperform larger rivals but some analysts are worried about the ETF’s rising exposure to Russian stocks.

DEM sports a three-year annualized return of 5.9%, compared with 1.7% for iShares MSCI Emerging Markets (EEM) and 2.3% for Vanguard FTSE Emerging Markets (VWO).

VWO is the largest emerging market ETF with $52.2 billion in assets, followed by EEM with $35.2 billion and DEM with $5.1 billion. [Emerging Market ETF Trouncing the Competition]

VWO and EEM weight stocks according to the traditional market-cap approach. Larger stocks get a bigger weighting.

DEM, the WisdomTree ETF, weights stocks by dividends. This strategy results in a different-looking portfolio. This scheme has resulted in outperformance relative to rivals, a quality tilt and lower volatility, says Morningstar analyst Patricia Oey.

DEM rebalances its portfolio annually in June, and the changes will implemented in the ETF at the end of this week.

Oey points out the ETF will again boost its exposure to risky Russian stocks. In last year’s rebalance, Russian stocks rose to 13% of the portfolio, from an average of 2% the prior three years. After this week’s rebalance, Russia will rise to 18% of the ETF’s portfolio, she said.

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