• Complements WT Equity Income: WT Equity Income’s strategy, focusing on stocks with high dividend yields, has significant weights in state-owned enterprises—most notably Chinese financials and Russian energy firms. WT Consumer Growth, by virtue of its design, actually avoids these sectors:
o Energy Sector: Since we believe the Energy sector to be more globally sensitive and less a play on a growing emerging market consumer, it is excluded from WT Consumer Growth—meaning no exposure to Russian or Brazilian Energy stocks. The Materials sector is excluded for much the same reason.
o Large Banks: Large banks tend to be global economic actors rather than focusing on their local markets, and the largest Chinese banks are prime examples. WT EM Consumer excludes banks with more than $10 billion in market capitalization.
Conclusion: An Interesting Portfolio Approach
The reality is that, as India and Indonesia have been recovering to start 2014, Russian Energy stocks and Chinese Financials may lead an emerging market rebound in the future. It is hard to envision EM Equities rebounding without China turning the corner and performing more positively. But we think it’s interesting to consider just how complementary WT Consumer Growth and WT EM Equity Income actually are. As of April 30:
• Low Overlap in Common Constituents: There were 53 common constituents, with an 11.6% weight in WT EM Equity Income and a 21.8% weight in WT Consumer Growth. That is approximately 80% of the WT Consumer Growth is uniquely positioned in different stocks and sectors.9
• Energy & Materials: WT EM Equity Income’s two largest sector over-weights compared to EM Equities were Energy and Materials. WT Consumer Growth avoids these sectors, making a good pair in obtaining exposure to EM generally.
The emerging markets have been among the most battered of asset classes over last three to four years, especially when compared with the performance in the United States. As investors begin to look for unique opportunities to position for a rebound in EM equities, the WT Consumer Growth Index is one such set of unique exposure. 2014 is off to a relatively good start, and this could be the year when emerging markets begin to shine among the regional counterparts.
1Source:Bloomberg, as of 4/30/14
2Specific period:8/9/13 to 8/30/13
3Source:MSCI, with data from 12/31/13 to 4/30/14
4Source:Bloomberg, with data from 12/31/13 to 4/30/14
5Source:(whole bullet point): “Optimism about the Performance of the Indonesian Rupiah Rate in 2014,” Indonesia Investments, 2/24/14
6Sources:Bloomberg for rupee’s performance and MSCI for performance of India’s equities. Period 12/31/13 to 4/30/14
7Source:Unni Krishnan, “India’s Shrinking Current-Account Gap Reduces Risks to Rupee,” Bloomberg, 12/3/13
8Source:for P/E ratio data: Bloomberg, as of 4/30/14
9Sources:WisdomTree, Standard & Poor’s, as of 4/30/14
Important Risks Related to this Article
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 and intervention or political developments. The recent growth in the stock market has helped to produce short-term returns for some asset classes that are not typical and may not continue in the future.
