DGS WisdomTree Emerging Markets SmallCap Dividend Fund

Many ETF providers have been filing for new products, with this trend picking up steam as we approach summer. WisdomTree has been no exception, having filed for three new ETFs in order to give investors a fresh way to tackle emerging market securities.

These new funds, if approved, would allow investors to tap into the quickly growing, but currently beaten down, emerging economies. These nations could be interesting plays in the future as their valuations are quite favorable at current levels, suggesting that WisdomTree’s potential offering could make a splash in the space (read: Time to Buy Emerging Market ETFs?).

While a great deal of the key information – such as expense ratio or ticker symbol – was not available in the initial release, other important points were released in the filing. We have highlighted those below for investors, who may be looking for a new emerging equity play from WisdomTree should they pass regulatory hurdles:

WisdomTree Emerging Markets Consumer Growth Fund

The proposed ETF looks to track the price and yield performance of the WisdomTree Emerging Markets Consumer Growth Index, before fees and expenses. This is a fundamentally weighted index that consists of consumer growth stocks in emerging markets having a market value of at least $1 billion and average daily trading volume of at least $500,000 for each of the six months preceding the Index rebalance.

This new fund, if approved, could fetch heavy inflows and investor interest in the future given that it has minimal competition. From our estimation, there are only a few other funds that are targeting this space with arguably the most well-known being the EGShares Emerging Markets Consumer ETF (ECON).

The product has amassed $970 million since its debut in Sep 2010. ECON tracks the Dow Jones Emerging Markets Consumer Titans 30 Index while charging higher 0.85% in fees. The fund holds 30 securities in the basket with focus on South African and Mexican firms, each having 19% share.

Further, the outlook for emerging consumer market looks attractive due to positive demographic trends in these countries. The median age in the emerging countries is much lower compared with most developed countries and growing incomes, many people join the ranks of middle class every day.

The rapidly growing middle class in emerging markets will ensure the growth of consumer-focused companies in these regions, and could make ETFs targeting this trend a strong choice  (read: Can the Consumer Staples ETF Go Higher?).

WisdomTree Emerging Markets Low Volatility Equity Fund

This proposed ETF looks to track the WisdomTree Emerging Markets Low Volatility Equity Index, focusing on stocks that provide low volatility and higher growth. The Index comprises 200 emerging market companies with the best historical volatility, return on equity, and return on assets. It is volatility weighted annually and caps each sector and country at 20%.

The new product could be an exciting pick for longer-term investors who focus on risk-adjusted returns and could see big inflows and solid investor interest as the low volatility strategy is a recent development (less than 2 years old) in the ETF industry.

Low volatility ETFs generate decent and often impressive returns above their higher volatility counterparts at times of market uncertainty. This is because these funds generally include those stocks in their portfolio that have shown more stability in the past and have experienced the least movement.

These funds have attracted a lot of attention in recent months due to increased market volatility and are outpacing their broad market counterparts this year by a wide margin (read: Buy These ETFs for Higher Returns and Lower Risk). However, there are currently two funds in the low volatility emerging market ETF space:

The most popular is the MSCI Emerging Market Minimum Volatility Index fund (EEMV) debuted by iShares in Oct 2011 and has an impressive $1.9 billion in AUM. The ETF holds 211 securities and charges a low expense ratio of 25 bps a year in fees.

The next popular product is the PowerShares S&P Emerging Markets Low Volatility Portfolio (EELV). This ETF has amassed $141.6 million in assets and holds 201 securities in the basket. The fund has an expense ratio of 0.29%.

WisdomTree Emerging Markets Dividend Growth Fund

This proposed fund will follow the WisdomTree Emerging Markets Dividend Growth Index, a fundamentally weighted index that consists of emerging market dividend-paying stocks with growth characteristics. The securities included in the index must have a market value of at least $200 million and average daily trading volume of at least $200,000 for each of the six months preceding the Index rebalance date.

This new product could be an interesting choice for investors seeking a new dividend-focused ETF, while at the same time looking for a broad diversified play on the emerging dividend market (read: Are There Really High-Dividend, Low-Risk ETFs?).

High dividend ETFs appear to be the best bet for yield-starved investors in the ultra low rate environment. At the same time, since most dividend paying companies are stable and mature, these ETFs could provide greater stability and safety in a volatile environment, which is once again an investor concern.

There is still an appetite for this fund despite a couple of choices in the space. This is because WisdomTree is already the dominant purveyor of emerging markets dividend ETFs (read: WisdomTree Files for Two Dividend ETFs).

The most popular in the bunch is WisdomTree’s own Emerging Markets Equity Income Fund (DEM). The product measures the performance of the highest dividend yielding stocks selected from the WisdomTree Emerging Markets Dividend Index. The fund has amassed about $5.5 billion in AUM while charges 63 bps in fees per year from investors.

Another popular product is the WisdomTree Emerging Markets SmallCap Dividend Fund (DGS) that focuses on small cap securities by tracking the WisdomTree Emerging Markets SmallCap Dividend Index. The fund charges 64 bps in annual fees and has managed assets over $1.5 billion (see more ETFs in the Zacks ETF Center).

Both funds have managed to amass a significant amount of assets, suggesting that there is tremendous demand for dividend-focused products.

Bottom Line

These funds, if approved, could give investors new ways to play the emerging markets beyond the current lineup. If they will succeed in terms of generating assets is another matter, though their novelty and investor demand for yield, low volatility, and emerging consumer stocks, could help in their quest to build up a significant following.

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WISDMTR-EM EQ I (DEM): ETF Research Reports
 
WISDMTR-E SC DV (DGS): ETF Research Reports
 
EMERG-GS DJ EMC (ECON): ETF Research Reports
 
PWRSH-SP EM LVP (EELV): ETF Research Reports
 
ISHARS-MS EMMV (EEMV): ETF Research Reports
 
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