2023 Emerging Market Dividend Index Rebalances

In 2007, WisdomTree launched a family of emerging markets (EM) Indexes and ETFs designed to track the performance of dividend-paying companies.

The universe of eligible companies is screened once per year, with Index constituents weighted based on cash dividends. This fundamentals-based rebalancing process gives greater weight to companies with higher dividend yields than comparable market cap-weighted indexes.¹

• WisdomTree Emerging Markets Dividend Index (WTEMI)  – broad market Index of EM dividend payers (1,641 companies)

• WisdomTree Emerging Markets High Dividend Index (WTEMHY) – top 30% of the EM Dividend Index by dividend yield (563 companies)

• WisdomTree Emerging Markets SmallCap Dividend Index (WTEMSC) – the bottom 10% of the EM Dividend Index by market capitalization (1,060 companies)

Index Dividend Yield

Investors often think of EM equities as a more inefficient asset class than U.S. equities, with less analyst coverage. For this reason, people often say they prefer utilizing an active manager for their EM exposure.

Over the live track record, WisdomTree’s passive, rules-based Indexes delivered strong relative performance compared to market cap-weighted EM benchmarks.

Index Cumulative Net Total Returns

Deconstructing the Sources of Emerging Market Equity Returns

Below, we examine the source of outperformance in emerging markets through the following lens: 

• Dividend Reinvestment: This factor can be thought of as the average dividend yield over this period.

• Dividend Growth: This is the rate of average annual dividend growth over the period.

• Valuation Change: This is the rate of average annual change in the price-to-dividend multiple (reciprocal of the dividend yield), and it tells us the return from multiple expansions/contractions over this period.

A few notable points:

• Due to the focus on both selecting only dividend payers and further weighting by dividends instead of market cap, it is not surprising that WisdomTree’s Indexes consistently exhibit a higher return from dividend reinvestment. But what does one give up when focusing on higher yields?

• Usually, there is a trade-off between growth and yield. Selecting higher-yielding stocks usually would imply sacrificing an offsetting amount of dividend growth for the same return in a perfectly efficient market.

• An especially intriguing result—for the high-dividend subset of the market, which had almost a three-point higher average dividend yield over the period, the dividend growth was still higher than that of the MSCI EM Index.

• For small caps, while the average dividend reinvestment rate was about 1.7% higher for the WisdomTree approach, the dividend growth was only 1.4% lower—meaning the higher yields did not translate one-for-one to slower dividend growth.

• While the WisdomTree Emerging Markets SmallCap Dividend Index had positive returns from valuation change, the WisdomTree Emerging Markets High Dividend Index and the WisdomTree Emerging Markets Dividend Index each had negative returns from valuation change—meaning the dividend yield got higher over this period.

Annualized Net Total Return Deconstruction: 7/31/08–9/29/23

2023 Rebalance – Characteristics

In the table below, we show some of the key characteristics of the respective Indexes pre-rebalance and post-rebalance.

• Dividend Yield: The dividend yield is roughly unchanged for both the broad dividends (WTEMI) and the small-cap dividend (WTEMSC) Indexes. The high dividends (WTEMHY) had an improvement from 8.2% pre-rebalance to an 8.9% dividend yield post-rebalance. With a dividend yield of 1.6% for the S&P 500 and 3.1% for the MSCI EM, each Index offers an attractive income opportunity.

• World’s Deepest Value Stocks: Emerging markets remain one of the lowest multiple regions, and one can see WisdomTree’s three emerging market dividend Indexes all have P/E ratios below 10—with the high dividend Index at 6x.

• % Negative Earners: Each of these Indexes explicitly screen out companies with negative trailing 12-month earnings at rebalance. Notably, the MSCI EM Small Cap Index has 11% in unprofitable companies—a key differentiator for WisdomTree’s dividend approach, which excludes unprofitable companies.

• Going up in Quality: Each WisdomTree Index saw improvement in return on assets (ROA) and return on equity (ROE) from the rebalance, as exposures were refreshed to higher-quality dividend payers and removal of the unprofitable segments of the market.

Index Characteristics

For the most recent month-end performance, please click the respective ticker: DGS, DEM.

For additional detail on the rebalance of each of the Indexes, please go to their respective Index page on the WisdomTree website:

• WisdomTree Emerging Markets Dividend Index

• WisdomTree Emerging Markets High Dividend Index (the WisdomTree Emerging Markets High Dividend Fund (DEM) seeks to track the price and yield performance, before fees and expenses, of this Index)

• WisdomTree Emerging Markets SmallCap Dividend Index (the WisdomTree Emerging Markets SmallCap Dividend Fund (DGS) seeks to track the price and yield performance, before fees and expenses, of this Index)

¹ Number of constituents for each Index based on post-rebalance Index holdings as of 10/19/23.