Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Emerging Markets Small-Cap ETF Soars Above Large-Cap Rivals


People say 2013 has been a bad year for emerging market ETFs, but they were looking only at large caps.

Editor's Note: This content was originally published on by The ETF Professor, Benzinga Staff Writer.

The proverbial "they" say that it has been a bad year for emerging markets equities and ETFs. They are correct, but only to a limited extent as it has been the largest developing markets and the corresponding ETFs that have been real laggards.

By focusing on large-cap emerging markets stocks and some of the ETFs that hold those shares, plenty of investors would be lead to believe 2013 has been a dreadful year in which to be long developing markets. They may not know that the opposite is true of emerging markets small-caps. The WisdomTree Emerging Markets SmallCap Dividend Fund (NYSEARCA:DGS) proves as much.

The WisdomTree Emerging Markets SmallCap Dividend Fund's underlying index, the WisdomTree Emerging Markets SmallCap Dividend Index (WMS), offers exposure to all 10 major sectors (financial services, industrials, discretionary, etc.), and in all 10 cases the index has outpaced large-cap an equivalent large-cap index.

For example, telecommunications shares in the WisdomTree Emerging Markets SmallCap Dividend Index were up 16% through April 10 compared to 4.3% loss for the same sector in the MSCI Emerging Markets Index (NYSEARCA:EEM), according to WisdomTree data.

Consumer staples and health care names in the small-cap index sported double-digit returns while the large-cap equivalents were only modestly higher. Large-cap emerging markets industrials, materials and technology names featured in the MSCI Emerging Markets Index traded lower, but those sectors in the WisdomTree Emerging Markets SmallCap Dividend Index rose.

"The mid- and small-cap stocks in the WisdomTree Emerging Markets SmallCap Dividend Index have outperformed their large-cap peers, represented by the MSCI Emerging Market Index, in all 10 sectors," said WisdomTree Research Director Jeremy Schwartz in a research note. "Every sector in the WisdomTree Index has posted a positive return year-to-date, while fewer than half the sectors of the MSCI Emerging Markets Index saw positive performance over the same period."

The $1.55 billion WisdomTree Emerging Markets SmallCap Dividend Fund allocates a combined 42% of its weight to financial services and industrial names with consumer discretionary, materials and technology also receiving double-digit allocations.

With developing world small-caps performing better than many expected, DGS is higher by 6% year-to-date while some of the marquee large-cap emerging markets ETFs are in the red. Surprisingly, DGS sports volatility of just 11.3% this year, making it about 200 basis points less volatile than two of its most popular large-cap rivals.

DGS has been able to deliver for investors this year due to another reason: country mix. Yes, laggard markets such as South Korea, South Africa, and China are featured within the fund. However, Thailand, Malaysia, and Turkey combine for over 28% of the ETF's weight. Throw in Indonesia and the Philippines and that means some of this year's better emerging markets account for over 35% of DGS's weight.

"The positive economic growth in emerging market economies is translating into a growing class of citizens with more discretionary income," said Schwartz. "We expect this trend will continue in emerging market countries, and it is important to focus on this new class of emerging consumers. Large-cap companies are important to consider, but many are concentrated in the energy and financial sectors and are more dependent on global growth. To capitalize on this growing emerging consumer, we think one strategy is a focus on small-cap companies that are often more dependent on the growth from their own country and citizens."

DGS, which debuted in October 2007, has a 30-day SEC yield of 2.57% and annual expense ratio of 0.64%.

Below, find some more great ETF and market content from Benzinga:

King of Low Vol ETFs Tops $5B in AUM

Equal-Weight ETF Trounces Traditional S&P 500 Peers

Will the Rainy Spring Lower Corn Yields?

Twitter: @Benzinga

Benzinga Pro covers this and all market news in real time. Get your free trial here.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos