Not all emerging market exchange traded funds (ETFs) are alike. Several can look at the same region, yet deliver some different results. Last week, we covered two of them that are based on market-cap weightings. But it’s fundamentally weighted funds that are outperforming.
A case in point is the WisdomTree Emerging Markets High-Yielding Equity (DEM), which has so far managed to resist the downturn in energy and commodities by a big margin in the emerging market ETF space. Jeremy Schwartz, deputy director of research at WisdomTree, noted that because the fund did its annual rebalancing in June, the fund has been able to significantly outperform other similar funds in the emerging markets category.
When the rebalancing took place, the weights in energy and materials were reduced, because of the fund’s strategy of selling off stocks that had risen above their fundamentals or become “expensive,” while buying more of the cheap stocks.
In July, the commodities started their downturn.
“It was a little bit of fortuitous timing that oil went down,” he admits. But he points out that the recent events are a prime example of how the fund’s quant rules-based system really works. “You don’t have to decide. It’s a mechanical rules-based formula, based on total dividends paid.”