On March 9, 2009, the S&P 500 Index
closed at 676. On March 16, 2016—even after the turbulence thus far in 2016—the S&P 500 Index closed at 2,027. That is price appreciation of 200% in cumulative terms, or, in other words, almost 17% per year.1
While at the time back in March 2009 there were discussions about the U.S. government potentially nationalizing certain banks, we now know that, with 20/20 hindsight, it was a great time to make an allocation to U.S. equities.
Many of us are kicking ourselves for not actually having had the fortitude to make an allocation to U.S. equities at that time, and we wish for another similar opportunity.
Finding Global Equities Priced Like It’s March 2009
In 2009, the world was in the midst of the global financial crisis, so if we’re honest, buying equities was not at the forefront of many of investors’ minds. There were some very real risks
threatening the health of the global financial system.
But it was precisely those risks that caused the opportunity!
We believe that we’ve found a universe of global equities priced at a similar level to where they were in 2009: the WisdomTree Emerging Markets High Dividend Fund (DEM)
. (Click for standardized performance of DEM.)
DEM Market Price Is Not Far above March 2009 Levels
March 2, 2009
The continued existence of the global financial system was at risk. Developed markets, including the United States and Europe, were the initial epicenters of the crisis. Looking at DEM at that point, we saw:2
March 16, 2016
• A price-to-earnings (P/E) ratio
of approximately 7.0x, which is one of the lowest points we’ve seen in the history of this portfolio.
• Taiwan was the largest single country exposure at approximately 33%, followed by South Africa and Malaysia in the 10% to 11% range. It is notable that exposure to the BRICs
broke down as follows: Brazil, about 8.0%; Russia, about 1.6%; India, less than 1.0%; and China, less than 2.0%.
• On the sector side, Telecommunication Services was the largest single sector exposure at slightly more than 21%, followed by Financials, which was slightly more than 20%. The weight in the Energy sector was about 9%, and it is worth noting that the price of a barrel of oil was slightly above $40.
• If we look at the one-year period prior to March 2, 2009, we see that the market price of DEM dropped more than 50%. It is worth noting, however, that the price level of the MSCI Emerging Markets Index
was down nearly 60% over the same period.
The U.S. and European economies are at various stages on a path to recovery. Central banks have provided vast amounts of liquidity
, and the continued viability of the financial system as we know it is not at risk. If there are concerns, they predominantly center upon Energy and commodities, which have been trending downward for some time, threatening emerging market economies that depend on exporting raw materials. We saw:3
• A P/E ratio of just 10.5x, which is very low compared to other global equity markets.
• Taiwan was the largest single country exposure, at approximately 24%. What we find the most interesting about the country exposure is how there have been massive shifts in terms of the overall exposure to the BRICs: Brazil, 8.3%; Russia, 13.1%; India, less than 1%; and China, just about 21%. This indicates that the highest-yielding stocks in emerging markets were located in starkly different countries in 2016 than they were in 2009.
• On the sector side, Financials was the biggest exposure at 24.2%, followed by Energy at 16.2% and Materials at 14.5%. It is worth noting that the price of a barrel of Brent crude oil was just over $40.
• If we look at the one-year period prior to March 16, 2016, we see that the market price of DEM dropped about 17%; the price level of the MSCI Emerging Markets Index was down a similar amount.
DEM Continues to Hunt for Valuation Opportunities
DEM is designed to track the performance of the WisdomTree Emerging Markets High Dividend Index
before fees. The Index searches for valuation opportunities each year, using high dividend yields
as the barometer. At a price approaching March 2009 levels, the critical question to ask is whether the risks in emerging markets today—which we agree are significant—are appropriately priced. If so, with an appropriately long time horizon, we believe in this asset class going forward.
Sources for bullets: WisdomTree, Bloomberg. Exposures and valuation measured as of 3/2/09; returns measured from 3/2/08 to 3/2/09.
Sources for bullets: WisdomTree, Bloomberg. Exposures and valuation measured as of 3/16/16; returns measured from 3/16/15 to 3/16/16.