To put it lightly, 2015 and recent years have been tough for emerging market (EM) allocations. Although this asset class has been under significant pressure, we do not view this as a reason to jump ship. In our view, the 2015 sell-off poses an opportunity to take control of your allocations rather than continue to hold on to a region that has underperformed.
In early 2015, there was a strong rebound in the emerging markets following the sell-off in commodities. This reinvigorated confidence in emerging markets ended with an April high for the MSCI Emerging Markets Index. However, since April 2015, emerging market equities have fallen approximately 22%.
Tiger Legatus Master Fund was up 0.1% net for the second quarter, compared to the MSCI World Index's 7.9% return and the S&P 500's 8.5% gain. For the first half of the year, Tiger Legatus is up 9%, while the MSCI World Index has gained 13.3%, and the S&P has returned 15.3%. Q2 2021 hedge Read More
But—as we said—we don’t think it’s time to bail. In fact, we believe that there is deep value to be found in the emerging markets. And we see an interesting way to capture it: tax loss harvesting into DEM, the WisdomTree Emerging Markets High Dividend Fund (which is designed to track the performance of the WisdomTree Emerging Markets High Dividend Index, shown above). While the convention is that year-end is the time for tax planning, we see market volatility as an opportunity to be more tactical. When we see significant downward moves—such as the current environment in EM equities—we think it makes sense to rotate strategies while booking a loss.
As DEM has tracked the WisdomTree Emerging Markets High Dividend Index since its June 16, 2007, inception, it’s worth noting that this Index has hunted for valuation opportunities on an annual basis, taking the top 30% of dividend-paying EM securities1 and weighting them based on annual cash dividends paid. Currently, the Index displays a 6.33%12-month trailing dividend yield and a price-to-earnings ratio (P/E) of 11.04x.2
DEM has been very responsive to the recent movements in the price of oil. This makes sense, what with the Fund’s large commodity exposure in materials or energy companies.
DEM certainly has faced headwinds from its exposure to energy and China over the recent years. But the long-term track record of a focus on high dividend stocks in the emerging markets has added meaningful value.
Unless otherwise noted, data source is Bloomberg.
Learn more about our emerging market strategies.
1Universe is defined as the WisdomTree Emerging Markets Dividend Index.
2Source: WisdomTree, as of 3/29/16.
Important Risks Related to this Article
Investments in commodities may be affected by overall market movements, changes in interest rates and other factors such as weather, disease, embargoes and international economic and political developments, and they are not suitable for all investors. Dividends are not guaranteed, and a company currently paying dividends may cease paying dividends at any time.
There are risks associated with investing, including possible loss of principal. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Funds focusing on a single sector generally experience greater price volatility. Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation, intervention and political developments. Due to the investment strategy of this Fund, it may make higher capital gain distributions than other ETFs. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.