Considering U.S. interest rates remain elevated and the dollar has been strong for much of this year, emerging markets equities have notched impressive performances in 2024. Though well behind the S&P 500, the widely followed MSCI Emerging Markets Index is up 8.3% year-to-date.
Some exchange traded funds are doing even better than that. Just look at the WisdomTree Emerging Markets Quality Dividend Growth Fund (DGRE ) which is up 11.47% year-to-date as of Aug. 28. To its credit, DEM has also been less volatile this year on an annualized basis than the MSCI gauge.
These are encouraging signs. However, DGRE has the potential to build on its 2024 gains. If the Federal Reserve cuts interest rates in September, particularly if that move leads to more downside for the greenback, DGRE may benefit. Precedent bodes well. Prior eras of dollar weakness have coincided with upside for the MSCI Emerging Markets Index.
DGRE Merits Consideration
DGRE’s quality overlay could prove particularly advantageous because the stark reality is that the emerging markets complex isn’t home to as many quality stocks as are found in the U.S. That gets into a conversation about geography. DGRE allocates more than a third of its portfolio to Indian stocks – a good thing because India has been the star among large developing economies over the past several years.
Taiwain, a tech-heavy, high-quality market in its own right, has an established track record of dividend growth. This confirms it merits its status as DGRE’s second-largest geographic exposure at almost 14% behind India. South Korea, the ETF’s third-largest country weight, has room to grow payouts, but offers other quality attributes.
“South Korea, on the other hand, does not tend to be a high-yielding dividend market, but it is at least looking at some Index providers like FTSE,” noted Christopher Gannatti, WisdomTree global head of research. “It is a developed country, so there is a lot of equity market activity with some very interesting global companies to choose from.”
Combined, India, Taiwan and South Korea represent more than 58% of DGRE’s portfolio and that could be a good thing regardless of whether or not the dollar declines in earnest. The reason? Those countries have long signaled they’re open for business and their political leadership is decidedly pro-growth and pro-markets.
“What are emerging markets? What are developed markets? The real answer these days is that it depends on who you ask. It is more important than ever to look under the hood and think about which countries might be poised to provide strong, pro-business conditions,” concluded Gannatti.
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