Cover Plenty of Emerging Markets Bases in this Model Portfolio

Emerging markets stocks are showing some signs of life, but this is still an asset class that can require a delicate approach.

Advisors can get just that with the Emerging Markets Multi-Factor Model Portfolio, which is part of WisdomTree’s broader suite of Modern Alpha Model Portfolios.

“This model portfolio is designed for investors with a long-term horizon looking for exposure to a broad universe of Emerging Market equities primarily using factor focused ETFs,” according to WisdomTree. “The selected ETFs provide certain factor tilts that have the potential to generate excess return relative to comparable cap-weighted benchmarks over longer-term holding periods. The strategies may use both WisdomTree and non-WisdomTree ETFs.”

A Model Idea Now

Emerging markets (EM) are coming off a much-needed rally in August after Covid-19 threw a wrench into their plans—much like most areas of the capital markets. Can we expect more of the same in the early going of September?

Another major piece of the EM success puzzle will be relations between the U.S. and China. This is even more apparent with the U.S. 2020 Presidential Election just two months away.

Factor-based strategies can be used to solve different portfolio needs. For instance, single factors help target exposure to enhance returns or address specific client needs, whereas a multi-factor approach may provide a diversified core equity allocation that leverages the benefits of multiple factors and limit cycle risks associated with individual factors.

The WisdomTree Emerging Markets Dividend Growth Fund (DGRE) is one of the components in the Emerging Markets Multi-Factor Model Portfolio. DGRE follows the WisdomTree Emerging Markets Quality Dividend Growth Index, which relies on a forward-looking methodology rather than yield or dividend increase streaks to weight components.

DGRE’s underlying index, the WisdomTree Emerging Markets Dividend Growth Index (WTEMDG), “was designed to focus on dividend payers within emerging markets that exhibit relatively strong earnings growth potential as well as relatively higher quality metrics.”

Dividend-growing companies are also high quality names and that’s meaningful in the current environment, particularly as it pertains to emerging market equities. When sorting by dividend yield: companies in the highest quintile of dividend yield – those whose ability to pay may become stretched in challenging markets – account for more than double the number of dividend cuts and eliminations versus those in the bottom quintile with more modest dividend yields.

For more on how to implement model portfolios, visit our Model Portfolio Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.