WisdomTree DEM: Full Analysis of the High Yield Emerging Markets ETF | Investing Guide

The DEM ETF seeks to track the WisdomTree Emerging Markets Equity Income Index. The index tracks emerging market securities that pay high yields. The fund uses “passive management” and seeks to invest all or substantially all of its assets in common stocks that are components of the index. DEM is part of my strategy Ex-US International ETFs and Dividend Stocks.

I prefer to buy shares directly rather than going through investment funds or ETFs. Furthermore, I am more inclined towards medium and growing dividends than high-yield securities. However, emerging market securities have the valuable quality of offering protection against the risk linked to the weakness of the greenback ($risk=-0.3). Using an ETF of this type therefore allows you to buy at a low price, with an expense ratio of only 0.63%, the trifle of 333 well-stocked dividend-paying positions with little sensitivity to the dollar.

The fund's top ten holdings are:

Top 10 Holdings
China Const Bk (E:939)	7.85%
Gazprom OAO (E:OGZD)	6.69%
Vale SA (E:VALE3)	3.04%
Ind & Com Bk China (E:1398)	2.75%
Lukoil Oil Co (E:LKOD)	2.47%
Bco Do Brasil Sa (E:BBAS3)	2.44%
Mtn Group Ltd (E:MTN)	2.06%
Bank Of China (Bj) (E:3988)	1.90%
Kumba Iron Ore Ltd (E:KIO)	1.62%
Chunghwa Telecom (E:2412)	1.58%
% of Total Holdings	32.40%

The ETF is overweighted in the financial sector, which is not surprising given the sell-off in these stocks since 2008. Again, it is not really my style to chase after these types of stocks. In any case, I would not invest in a bank with poor fundamentals and that does not display stability in its dividend payment. Here, however, the situation is somewhat different since the risk is spread not only across several financial institutions, but also across other sectors such as energy, materials, telecoms, etc.

In addition, the ETF's geographic diversification also allows risk to be spread across many emerging countries, with Taiwan and Hong Kong leading the way:

One would expect to get a very high return from this type of investment, however the current yield is only 3.6%, significantly lower than its long-term average of 4.29%. The current yield is slightly higher than what can be obtained from, for example, Global Dividend Growers, but without it being really extraordinary either. It must be said that there is a bit of excitement among some investors about these high-yield securities, which naturally makes their price rise and therefore lowers what they were bought for...

On the other hand, one quality that remains very present in this ETF is its relatively low volatility in CHF, with 14.06%, which is quite remarkable for emerging market stocks. This is explained by the strong diversification of the fund, in terms of positions, sectors, countries and currencies.

In conclusion, DEM is a bit overvalued at the moment, due to the attraction of some speculators to high yield securities and/or emerging markets. The profitability that can be obtained from it today is therefore not ideal. However, thanks to low volatility and good protection against currency risk (which is one of the goals of the strategy Ex-US International ETFs and Dividend Stocks), DEM obtains 3 stars, which is a good profitability/risk ratio.