Some emerging markets stocks and exchange traded funds have recently shown signs of improvement, but real strength continues to be seen in Middle East markets – namely Qatar and the United Arab Emirates.
Those markets combine for 58% of the WisdomTree Middle East Dividend Fund (NasdaqGM: GULF), helping explain why this previously obscure ETF has recently been gaining prominence. An almost 42% gain over the past year while traditional emerging markets benchmarks have flailed is lifting GULF from the ranks of overlooked ETFs.
GULF tracks the WisdomTree Middle East Dividend Index (WTEMME), which is not only dividend-weighted, but includes only companies that can be purchased by foreign investors. The index is home to 74 companies as of Feb. 10, though GULF currently holds 70 stocks. Over 88% of the WisdomTree Middle East Dividend Index’s holdings are either large- or mid-caps and the index has a total market value of $370 billion, according to WisdomTree data.
The WisdomTree Middle East Dividend is extending its gains, soaring to new all-time highs along the way.
“The Index finished the most recent calendar year with a gain of over 37%, putting it at an all-time high and pushing its cumulative return since inception into positive territory for the first time. Year-to-date, WTEMME continues to forge new highs, up close to 10.5%, outperforming both the S&P 500 and MSCI EM by over 10% and almost 16%, respectively,” said WisdomTree Research Director in a new research note.
A frequently voiced concern during the rally in shares of Qatar and UAE-listed companies is that stocks in those countries have become richly valued, a scenario that some market observers argued was exacerbated when investors rushed into those markets following last year’s news that UAE and Qatar will be promoted to emerging markets from frontier markets status. However, it is worth noting stocks in Qatar and UAE, while in rally mode, have not run back to their pre-global financial crisis highs. [Go With GULF]
“The weighted average performance of stocks within WTEMME domiciled in Qatar and the UAE were up over 29% and 99%, respectively. Yet stocks within Qatar have a dividend yield of 4.36% and an estimated price-to-earnings ratio of 12.2x, while UAE stocks had a dividend yield of 2.8% and an estimated price-to-earnings ratio of 12.9x,” said Schwartz.
GULF has traded slightly lower this week following news that Russell Investments will demote Egypt to frontier status from emerging markets classification. North Africa’s largest economy is GULF’s fourth-largest country allocation at a weight of 11.4%. [Watch Egypt ETF on Russell Market Demotion]
Still, there are catalysts for further upside in GULF and some Middle East equities, including low correlations to traditional emerging markets and robust dividend growth.
Schwartz points out that GULF’s three largest holdings, which combine for almost 22% of the ETF’s weight, announced dividend increases averaging 22% last year.
WisdomTree Middle East Dividend Fund
