DEM WisdomTree Emerging Markets High Dividend Fund

The ETF world has been expanding at a torrid pace in recent months as a variety of firms race to bring new funds to market. The product pipeline looks pretty rich as well, as a number of firms have proposed new products in recent SEC filings.

In particular, a number of brand new issuers have stepped onto the scene with a variety of filings, including KraneShares. The firm has already filed for seven ETFs although none have yet hit the market.  

KraneShares is now looking to debut a China based ETF named the ‘KraneShares Dow Jones China Select Dividend ETF’ as confirmed by the recent filing made for the new issue. The proposed ETF has been designed to track, before fees and expenses, the performance of a specific foreign equity securities benchmark (see 11 Great Dividend ETFs).

The fund’s current benchmark is the Dow Jones China Select Dividend Index. The Underlying Index has been intended to pick securities which possess positive dividend-paying and yield characteristics.

The fund, if approved, looks to use the full replication strategy thereby investing all or substantially its entire asset base in the underlying index. The fund also looks to invest some portion of its asset in securities other than those in the index which may help the fund to better follow the Underlying Index

This fund has been designed to provide exposure to dividend-paying securities from China-based companies that are primarily listed either in Hong Kong or the United States. Also, the allocation of the asset will also be made in publicly traded Hong Kong-based companies that generate the majority of their revenues from China (Read Forget FXI: Try These Three China ETFs Instead).

Appeal of Dividends

Given the risks in the market and extreme stock volatility over the past few years, many investors sought more stability in their portfolios along with high levels of current income. Unfortunately, bond yields were quite low pushing many into high dividend paying stocks instead. 

Beyond individual securities, investments in equity ETFs which have stocks that pay high dividend yields emerged as a source of decent income for investors. This has proven to be a pretty good strategy as intermediate term bonds are still yielding below broad stock markets and equities are rising higher so far in 2012 (for the most part) as well (see What Bubble? China ETFs Soaring To Start 2012).

But most domestic dividend paying companies are mature, and do not offer the growth potential that some newer, smaller companies offer. An attractive option for such investors is to invest in the Emerging Market Dividend ETFs that combine the opportunity to benefit from the higher growth potential in the emerging markets with the steady flow of dividend income.

Competition

Although there aren’t any other China dividend funds at this time, there is a wide universe of the emerging market dividend ETFs has many funds designed to meet investor needs across a variety of sectors. The most popular among these are the WisdomTree Emerging Markets Equity Income Fund (DEM) and Emerging Markets Dividend Index Fund (DVYE).

DEM tracks the WisdomTree Emerging Markets Equity Income Index, which measures the performance of the high dividend yielding stocks in the emerging markets.

The fund is heavily invested in Financials (26.5%), followed by Telecom (19.6%) and Information Technology (13.8%). For country allocations, Brazil takes the top position with 22.2% of investment, followed by Taiwan (21.1%) and South Africa (9.8%). The fund charges a premium of 63 basis points (read Emerging Market Dividend ETFs For Income and Growth).

It had delivered a total return of 30.98% and an average annual return of 6.11% since inception. Year to date, the fund has returned 15%. The dividend yield is 3.89% versus an average US dividend yield of less than 2%.

Another ETF which can pose a competition to the fund is DVYE. The fund, which is passively managed, replicates the performance of the Dow Jones Emerging Markets Select Dividend Index. 

The fund holds 99 stocks and thus focuses on a smaller group of companies compared with DEM. The underlying stocks are selected on the basis of dividend yield. The ETF currently charges 0.49% to the investors (see Inside The SuperDividend ETF).

Market uncertainty leads to increased investments in dividend ETFs as investors need to be assured of a certain level of income. Also, emerging market ETFs come with a decent opportunities and a steady level of dividend income.

If approved, the fund with its favorable characteristics and China focus could be of interest to some emerging market investors. However, competition looks to be high overall, especially considering the lack of brand name recognition regarding KraneShares.

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