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=-0.32). 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 318 well-stocked dividend-paying positions with little sensitivity to the dollar.
The fund's top ten holdings are:
| Top 10 Holdings | |
|---|---|
| Gazprom OAO (—) | 6.67% |
| China Const Bk (939) | 5.25% |
| Ojsc Oc Rosneft (—) | 5.19% |
| Jsc Mmc Norilsk Nickel (—) | 3.58% |
| Ind & Com Bk China (1398) | 3.57% |
| Oil Co Lukoil (—) | 3.03% |
| Bank Of China Ltd (3988) | 2.50% |
| Mtn Group Ltd (MTN) | 2.27% |
| KGHM Polish Municipality (KGH) | 1.82% |
| Sasol (SOL) | 1.79% |
| % of Total Holdings | 35.70% |
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 geographical diversification also allows the risk to be spread across many emerging countries, with Russia and Hong Kong in the lead:
Remarkably, the current yield is 4.22%, slightly higher than the long-term average of 4.06%. In these times, with the general surge in stock prices, it is becoming excessively difficult to find stocks that pay more generous dividends than in the past. The annual dividend growth of 2.95% is certainly not huge compared to the other dividend growth stocks followed in my various strategies, but it at least has the merit of hedging against the risk of inflation.
Another remarkable quality of this ETF is its very low volatility in CHF, with 7.61%, 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 paradoxically very attractive stock at the moment. Moreover, 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 gets 4 stars, which is a very good risk/return ratio. Probably one of my future purchases...
Sources: Yahoo Finance, Swissquote, money.usnews.com, wisdomtree.com
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Good morning
Thank you for this information. However, isn't there a risk of seeing the fund spread over too many emerging countries and therefore increasing the risks of investing in certain volatile markets?
Ludovic
Of course there is a risk, as with any financial instrument. But as I said, the diversification of the fund is very important, both from a sectoral and geographical point of view. The very low volatility is one of the consequences.