• The WisdomTree “Growth” Strategies in Emerging Markets: The WisdomTree Emerging Markets Consumer Growth and Dividend Growth Indexes are currently more expensive than the broad MSCI Emerging Markets benchmark on a P/E ratio basis. Intuitively, however, this makes sense because they have sensitivity to higher growth and quality1 metrics built directly into their stock selection methodologies. The WisdomTree Emerging Markets Dividend Growth Index—with its focus on penalizing highly leveraged firms—avoids many financials, such as the inexpensive, large Chinese banks. The WisdomTree Emerging Markets Consumer Growth Index is unable to include any energy or materials firms or any banks with market capitalization above $10 billion. Growth and quality are currently a big theme when people look at U.S. equities, but we question why that can’t also be the case in emerging markets.
• The Avoidance of Government Ownership: While very different than what investors generally face in U.S. equity markets, one reality of emerging markets is that government actors can secure very large ownership stakes in companies of their choosing. We created the WisdomTree Emerging Markets ex-State-Owned Enterprises Index to help investors avoid this very specific risk. Currently, this Index looks more expensive than the others because many of the least expensive firms in emerging markets are in fact state owned (which by our definition means more than 20% owned by the government). Thus far this year, it is up 9.6%.
Unless otherwise noted data source is Bloomberg.
1Refers to 3-year average return on equtiy and 3-year average return on assets.
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.
– See more at: http://www.wisdomtree.com/blog/index.php/fine-tune-your-emerging-markets-exposure/#sthash.Q5QX9tDp.dpuf