WisdomTree Emerging Market Small Cap ETF Enables Diversification

Emerging market stocks have been recognized as an important asset class for diversification purpose for a long term retirement investing portfolio. Small company stocks in emerging economies offer even higher growth in this asset class. The small cap shares are usually those which have relatively small market capitalization usually ranging between $ 300 million to $ 2 billion.
It is thus important to study these ETFs more carefully before investing.  In this article, we present more detailed study on WisdomTree Emerging Market ETF (NYSE:DGS).

The following table lists three most liquid small cap ETFs in this asset class. 

Emerging Market Small Cap


Description Symbol 1 Yr 3 Yr 5 Yr Avg. Volume(K) 1 Yr Sharpe
SPDR S&P Emerging Markets Small EWX 18.27% 3.74% NA 119 104.22%
Wisdomtree Emerging Mkts Small DGS 33.94% 11.31% NA 129 166.6%
Guggenheim Frontier Markets FRN 19.43% NA NA 72 108.31%

For information on more ETF performance, please refer to here

From the above table clearly DGS is leading the other in terms of longevity and in terms of returns of one year. Compared with broad base emerging market index ETF (DGS), its three year annualized return 11.31% is way above the EEM’s annualized return (about 0%). The inception date of the fund is 8/1/2007. 64% of the fund iin small cap shares.

DGS has also a unique diversification in the emerging market. Please see the following table for its holding percentages among countries as of 6/06/2011.

1. Taiwan 20.97%
2. South Korea 11.24%
3. South Africa 9.65%
4. Thailand 9.61%
5. Brazil 8.95%
6. Israel 7.21%
7. Turkey 6.88%
8. Malaysia 5.31%
9. China 5.00%
10. Chile 4.17%
11. Philippines 3.18%
12. Indonesia 2.34%
13. Mexico 2.25%
14. India 1.25%
15. Poland 0.52%
16. Argentina 0.33%
17. United States 0.15%

Please also find below the sector wise diversification of DGS as on 06-06-2011.

Sector Weight
1. Industrials 21.40%
2. Financials 18.47%
3. Consumer Discretionary 16.38%
4. Information Technology 11.54%
5. Materials 10.19%
6. Consumer Staples 7.71%
7. Utilities 6.67%
8. Health Care 2.95%
9. Energy 2.38%
10. Other 2.08%

One of the biggest advantages of investing in small-cap stocks is to exploit market inefficiency: the opportunity to beat institutional investors.Many small cap companies are not well researched. This is more true for emerging market small companies. Since DGS offers a systematic way to invest in a broad basket of small compaines in these regions, it is an effective to gain exposure in this important asset class and derive higher returns.

Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical

Written By The Staff Of MyPlanIQ.com

LTI Systems, Inc. is the operator of MyPlanIQ.com and ValidFi.com. The founders of LTI Systems have extensive technology and business background in computer and semiconductor industries. They have been using the strategies provided by MyPlanIQ for their own personal retirement and taxable investments. The mission of LTI Systems is to make wealth management investment strategies that are used to be only accessible to institutions and high net worth individuals available to private investors with a fraction of flat cost and ease of use. The founders of LTI Systems, investors themselves, take pride in creating such a system and service for investors by taking the perspective from the investor side. They are using the system and the strategies for their own investment and align their interests with their customers.  

MyPlanIQ’s blog provides periodical articles to discuss issues related to retirement plans (401(k), 403(b) and IRAs), deferred compensation plans (457), college savings plans (529), taxable brokerage investment accounts, variable annuities and universal life insurance plans. It also covers investment strategies, specifically strategic and tactical asset allocation and investment products such as ETFs and mutual funds. In addition, it syndicates daily articles that are related to retirement planning, personal finance, investment strategies, annuities, insurance, college savings and market/economic outlooks. It provides a comment and discussion community for readers.

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