DEM WisdomTree Emerging Markets High Dividend Fund

2012 will go down as another significant year in the history of ETF industry. Net inflows for the year through November surged to $159.1 billion, up 55.4% from the inflows for the same period last year. While the number of products launched this year was lower compared to recent years and the closures were higher, the assets under management increased.

Investors’ appetite for fixed income and emerging markets assets increased significantly this year, resulting in many new products being added in these categories. (Read: Play Four Megatrends with These ETFs)

Of about 160 products launched this year through November, most are designed to follow the popular strategies that have worked so far, whereas few offer unique, innovative investing opportunities that were earlier unavailable to regular investors. Some will flourish while some will languish due to lack of investor interest.

Below we highlight four best ETFs launched this year that in our view will emerge as big winners in the industry in the days to come. (Read: 3 ETFs to prepare for the fiscal cliff)

Market Vectors Wide Moat ETF (MOAT)

The term “economic moat” was popularized by Warren Buffet who said that he seeks "economic castles protected by unbreachable 'moats'.” In simple words moat is a unique competitive advantage that allows a company to outperform others in the same industry over time.

Thanks to Market Vectors Wide Moat ETF, investors can now own a diversified group of such potential winners. (Read: Invest like Warren Buffett with These ETFs)

Launched in April this year, MOAT tracks Morningstar Wide Moat Focus Index which gives equal-weighted exposure to 20 least-expensive wide-moat companies. These are mostly large-cap companies with sustainable competitive advantage in their respective industries. The ETF charges just 49 basis points in annual expenses and has already attracted almost $1 billion in assets.

The index strategy has worked so far. In five years through July, the Moat index gained 7.4% annualized, with dividends, versus a total return of 1.1% for the S&P index and 2.6% for the S&P 500 equal-weighted index.

PIMCO Total Return ETF (BOND)

BOND is the ETF version of PIMCO’s flagship blockbuster mutual fund—the PIMCO Total Return Institutional Fund. (Read: 3 Actively Managed Bond ETFs for Stability and Income)

BOND is a very popular product since it provides the opportunity of getting the portfolio management expertise of Bill Gross, one of the most respected investment managers in the world. The ETF has become the most successful ETF launch since GLD’s launch in 2004.

The fund currently has $3.9 billion in AUM and charges an expense ratio of 55 basis points per year. Though the ETF does not use swaps or other similar derivative instruments which are in the mutual fund versions of the product (due to SEC rules), it has been outperforming its mutual fund counterpart since inception in March this year.

The portfolio currently holds 816 securities with an effective maturity of 7.6 years and effective duration of 4.8 years.

According to some industry experts actively managed bond ETFs are likely to become popular in future and further with time-proven success of PIMCO Total Return strategy, we expect this ETF to be an outperformer in the fixed income world.

PowerShares S&P 500 High Dividend Portfolio (SPHD)

As the traditional fixed income instruments currently yield miniscule returns, yield-hungry investors have poured a lot of money into high-dividend yielding stocks and ETFs in the past couple of years. While we like the high-quality companies with strong fundamentals, which have consistently increased their pay-outs in the past, many high-yield stocks are fundamentally not so sound, exhibit high volatility and may ultimately result in losses.

Many academic studies have shown that low-volatility stocks outperform the broader market over longer period and they consistently deliver better risk-adjusted returns. (Read: 4 low volatility ETFs to hedge your portfolio)

While dividend paying stocks have taken a hit of late due to cliff related tax concerns, we believe that high-quality, low-volatility dividend payers still represent long-term value. 

SPHD intends to combine two most desirable investment themes—high dividend and low volatility, which almost guarantees the long-term success of this ETF.  The index is composed of 50 stocks that historically have provided high dividend yields and exhibited low volatility.

Launched in October this year, the fund has attracted more than $22 million in assets so far. It charges an expense ratio of 30 basis points and currently has a distribution yield of 5.03%.

Emerging Markets Dividend Index Fund (DVYE)

The investment case for Emerging Markets Dividend ETFs is pretty strong now since the investors can benefit from the higher growth potential in the emerging markets with the steady flow of dividend income in addition to ‘escape’ from the “fiscal-cliff” issues in the US.

This ETF is designed to compete with the very popular WisdomTree ETF DEM, providing a lower cost alternative to the investors, while fulfilling similar investment objective. (Escape the Cliff with These Dividend ETFs)

The fund seeks to replicate the Dow Jones Emerging Markets Select Dividend Index. DVYE has much less exposure to the volatile Financials sector (15.2%) compared to DEM (27.1%), with top weighting assigned to Industrials (17.7%) and Telecom (15.4%).

Taiwan leads the country allocation with 22.6% weight, followed by South Africa (10.5%) and Turkey (9.6%). The fund holds 101 stocks and thus focuses on a smaller group of companies compared with DEM (293 holdings).

The ETF currently charges 0.49% to the investors compared with 0.63% for DEM. This product pays out a yield of 3.28% currently. In terms of returns, it has managed to outperform DEM with an impressive 15.1% return for the past 26 weeks compared with 10.7% for DEM.

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PIMCO-TOT RETRN (BOND): ETF Research Reports
 
WISDMTR-EM EQ I (DEM): ETF Research Reports
 
ISHARS-EM DIV (DVYE): ETF Research Reports
 
MKT VEC-MS WMFF (MOAT): ETF Research Reports
 
PWRSH-SP5 HI DV (SPHD): ETF Research Reports
 
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