The fund takes those stocks with the top dividend yields, then winnows that list down to what is currently 310 holdings.
WisdomTree uses dividends to weight stocks because, among other things, cash dividends can be a measure of a company’s value and profitability.
So far, the strategy appears to work: the fund is down 2.6% year-to-date. It was outperforming other emerging markets ETFs before the rebalancing, but the latest moves only enhanced its performance:
- PowerShares FTSE-RAFI Emerging Markets ETF (PXH), down 14.2% year-to-date
- WisdomTree Emerging Markets Small Cap Dividend (DGS), down 15.7% year-to-date
- Vanguard Emerging Market (VWO), down 18.4% year-to-date
- iShares MSCI Emerging Markets (EEM), down 17.8% year-to-date
PowerShares also uses four factors to weight its stocks: dividends, cash-flow, book value and sales, and it to is outperforming the more traditional weighting methods used by VWO and EEM.
Between the fundamentally weighted ETFs, there’s no huge cost advantage, says Confused Capitalist for iStock Analyst. DEM and DGS are cheaper at 0.63%, while PXH is 0.85%.