WisdomTree, a New York-headquartered global exchange-traded fund provider, has rolled out two more fundamentally-weighted ETFs on the London Stock Exchange, this time providing exposure to dividend-paying emerging market stocks.
Nik Bienkowski, Co-CEO of WisdomTree Europe.
The funds – the WisdomTree Emerging Markets Equity Income UCITS ETF (DEM) and WisdomTree Emerging Markets SmallCap Dividend UCITS ETF (DGSE) – take the total number of WisdomTree ETFs listed on the LSE to six.
These latest funds offer access to higher-income and small-cap stocks, respectively, which are listed on an exchange in one of the following emerging market countries: Brazil, Chile, China, Czech Republic, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
Like the provider’s initial batch of funds which launched last month, the new funds are linked to in-house proprietary dividend-weighted indices that are designed to be an alternative to market capitalisation-weighted indices, which weight stocks on price alone.
Indeed, a core tenet of the WisdomTree approach is that conventional market capitalisation-weighted indices contain an inherent flaw, namely that as a stock’s price increases, its weight in the also index increases (and vice versa). This potentially results in overvalued stocks being overweighted and undervalued stocks being underweighted.
By contrast, weighting by dividends ensures that portfolio allocations are more consistent with academic understanding of valuation and performance, and are driven by one of the actual measurable contributors to total return. It also means that the funds deliver a punchy income yield – a particularly appealing feature in today’s low interest rate environment! As of 30th September 2014, for example, the dividend yield of the index underlying the income ETF was 5.5%, while the dividend yield of the index underlying the small-cap fund was 4.1%.
Nik Bienkowski, Co-CEO of WisdomTree Europe, said: “We are extremely proud to expand WisdomTree’s platform of UCITS ETFs with two new ETFs providing exposure to emerging market small-caps and emerging market equity income. WisdomTree’s dividend-weighted smart beta ETFs now cover the three major regions of Europe, the US and emerging markets. Over the long-term, dividend-weighted indices have the potential to improve risk-adjusted returns.”
The ETFs are Irish-domiciled and physically replicated. They have total expense ratios of 0.46% (DEM) and 0.54% (DGSE) respectively.