When we compare these, we find WTEMCG offers:
• Broader Sector Exposure: DJ EM Cons invests narrowly in only the consumer sectors, the very sectors that have underperformed year-to-date2. In fact, DJ EM Cons had more than a 60% average weight to the Consumer Staples sector during the period. Some of the strongest performing sectors in WTEMCG, on the other hand, were Utilities and Telecom, up more than 24% and 11%, respectively.
• Broader Stock Selection: WTEMCG, with 247 stocks3, offered broader stock selection. DJ EM Cons includes only 30 securities, subjecting investors to much greater stock selection risk and likely greater volatility as well.
Focus on Broad Diversification and Valuations
The EM consumer theme will likely drive global growth in the years ahead. But without broad diversification and valuation sensitivity, we wonder whether or not investors will profit from it.
1Sources: Bloomberg, references the fact that the MSCI Emerging Markets Index has lagged the S&P 500 Index over the most recent three-year period from 8/31/11–8/31/14.
2Source: Bloomberg. Refers to the fact that the MSCI EM Consumer Staples and MSCI EM Consumer Discretionary Indexes have underperformed the broader MSCI EM Index. 12/31/13–09/15/14.
3Sources: WisdomTree, Bloomberg, number of holdings as of 9/15/14.
Important Risks Related to this Article
Diversification does not eliminate the risk of experiencing investment losses. 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. Investments focusing on certain sectors and/or smaller companies increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility.