As has been widely documented, value stocks in developed markets have trailed their growth and momentum counterparts. The same is true in emerging markets, as the MSCI EM Value Index trailed the MSCI EM Growth Index in four of the five years ending Dec. 31, 2017.
With signs pointing to an emerging markets value resurgence, investors may want to consider high-dividend strategies, such as the WisdomTree Emerging Markets High Dividend Fund (NYSE: DEM). The $2.33-billion DEM ranks stocks by dividend yield, and the fund's underlying index weights those components on the basis of cash dividends paid.
DEM makes good on its high-yield promise. The exchange traded fund has a trailing 12-month dividend yield of 3.38 percent compared to 1.74 percent on the MSCI Emerging Markets Index.
Good Timing For DEM
DEM is up more than 8 percent year-to-date and is sitting about 1 percent below its 52-week high. By comparison, the MSCI Emerging Markets Index is up just over 6 percent. That could be a sign emerging markets value stocks are on the mend.
“Right now, we may be at an important inflection point in emerging market equities, where value stocks, particularly in the higher dividend-yielding segment of the market, begin once again to outperform EM growth stocks,” WisdomTree said in a recent note.
“In four of the last five years, for example, the MSCI EM Value Index underperformed the MSCI EM Growth Index. But year-to-date, that has reversed, with MSCI EM Value outperforming MSCI EM Growth, while the MSCI Emerging Markets High Dividend Yield Index is beating both.”
DEM allocates 41.5 percent of its combined weight to Taiwan and China, two of the steadiest dividend growth destinations among developing economies.
Call It A Comeback
DEM's strong showing through the first two months of 2018 could be a sign the value factor in emerging markets is returning to form.
“After a period of relative underperformance, value is making a comeback in emerging markets, led by its higher-dividend-yielding stocks,” said WisdomTree. “For investors looking to maximize yield, the WisdomTree Emerging Markets High Dividend Fund, which tracks the WisdomTree Emerging Markets High Dividend Index, remains WisdomTree’s most appealing option in emerging markets.”
Rising commodities prices should provide an additional tailwind for DEM: the ETF allocates over 31 percent of its combined weight to the energy and materials sectors.
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Todd Shriber owns shares of DEM.
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