To put it lightly, 2015 and recent years have been tough for emerging market (EM) allocations. Although this asset class has been under significant pressure, we do not view this as a reason to jump ship. In our view, the 2015 sell-off poses an opportunity to take control of your allocations rather than continue to hold on to a region that has underperformed.
In early 2015, there was a strong rebound in the emerging markets following the sell-off in commodities. This reinvigorated confidence in emerging markets ended with an April high for the MSCI Emerging Markets Index
. However, since April 2015, emerging market equities have fallen approximately 22%.
22% Downdraft from 2015 High to Present
But—as we said—we don’t think it’s time to bail. In fact, we believe that there is deep value to be found in the emerging markets. And we see an interesting way to capture it: tax loss harvesting
into DEM, the WisdomTree Emerging Markets High Dividend Fund
(which is designed to track the performance of the WisdomTree Emerging Markets High Dividend Index
, shown above). While the convention is that year-end is the time for tax planning, we see market volatility
as an opportunity to be more tactical. When we see significant downward moves—such as the current environment in EM equities—we think it makes sense to rotate strategies while booking a loss.
As DEM has tracked the WisdomTree Emerging Markets High Dividend Index since its June 16, 2007, inception, it’s worth noting that this Index has hunted for valuation
opportunities on an annual basis, taking the top 30% of dividend
-paying EM securities1
and weighting them based on annual cash dividends paid. Currently, the Index displays a 6.33% 12-month trailing dividend yield
and a price-to-earnings ratio (P/E)
DEM has been very responsive to the recent movements in the price of oil. This makes sense, what with the Fund’s large commodity exposure in materials or energy companies.
DEM certainly has faced headwinds from its exposure to energy and China over the recent years. But the long-term track record of a focus on high dividend stocks in the emerging markets has added meaningful value.
Unless otherwise noted, data source is Bloomberg.
Learn more about our emerging market strategies.
Universe is defined as the WisdomTree Emerging Markets Dividend Index
Source: WisdomTree, as of 3/29/16.