WisdomTree: EM Consumer Growth: Cheaper Valuations and Higher Quality

• WTEMCG for Income Potential: Even though WTEMCG weights according to net income, which results in a lower P/E tilt to construction, WTEMCG’s 2.7% dividend yield offers an important income buffer for those seeking exposure to the emerging markets. WTEMCG’s dividend yield is a full 1% higher than that of the Dow Jones Emerging Markets Consumer Titans 30 Index and is slightly higher than the broad MSCI Emerging Markets Index.

• An Emphasis on Quality: WTEMCG’s valuation story is incomplete without a discussion of quality. Its methodology rewards companies that show promise in terms of return on equity (ROE) and return on assets (ROA). This combination of ROE and ROA not only rewards companies that are highly efficient in utilizing their assets and equities to generate net income, it also penalizes companies that employ immense leverage in doing so. As a result, WTEMCG has the highest ROE and ROA of the Indexes listed above.
WTEMCG has a broad focus on the emerging markets consumer growth theme. The Index identifies securities whose revenue is primarily based in emerging markets. Further, it has the benefit of being broadly focused on the EM domestic demand story, which is reflective of the growth in emerging markets’ middle class. A key consideration in its methodology is sensitivity to valuation, employing a two-part process to enhance WTEMCG’s valuation focus:
• Stock Selection: Index screening incorporates a one-third ranking to the earnings yield—in other words, a focus on stocks with lower prices relative to the earnings they have generated

• Weighting: Weighting by net income with an annual rebalance

This ultimately results in an Index that likely has a bias for less expensive valuation and higher quality⁵ compared with its competitors.

¹Source: Bloomberg, as of 7/25/14. Past performance is not indicative of future results.
A fund’s performance, especially for very short time periods, should not be the sole factor in making your investment decision.
²Growth, quality and valuation measures: One-third weighted to the rank of long-term estimated earnings growth, one-third weighted to the rank of historical three-year average return on equity and historical three-year average return on assets, and one-third weighted to the rank of the earnings yield.
³As of 7/25/14, WTEMCG has 248 constituents and seven sectors that have over a 1% weight.
⁴Domestic demand sectors are Consumer Staples, Consumer Discretionary, Telecommunication Services, Utilities and Health Care.
⁵Measures through higher ROE and ROA as well as lower leverage.