New Fund Alert:  Wisdom Tree Emerging Markets High Yield (DEM)

In this post, we profile some of the most promising new funds to hit the market.

Wisdom Tree Emerging Markets High Yield (NYSE: DEM, $48.44) — This newest offering from the growing Wisdom Tree family of funds officially hit the market a few weeks ago.

Wisdom Tree was among the first to branch out (no pun intended) into the next generation of indexing methodology. For decades, market-capitalization was the preferred choice when it came to index weighting. In other the words, the larger the company, the greater its impact on the index's returns.

However, Wisdom Tree has developed a popular alternative — fundamentally-weighted benchmarks. By allowing fundamental measures to dictate stock weightings rather than sheer size alone, the firm's indices aren't quite as tethered to the performance of a handful of giant companies. And what better fundamental metric to use than dividends, which have been proven to be highly correlated with long-term market performance.

Trading on the New York Stock Exchange, DEM will track the performance of a basket of high-yielding stocks representing 19 emerging market nations throughout Asia, Europe and Latin America. The fund will carry an expense ratio of 0.63%, which is quite reasonable for this particular category.

With less than a month of trading history, the fund hasn't yet established much of a track record. However, Wisdom Tree has back-tested the performance of its benchmark to give investors an idea of how it would have done over time — and the data is promising.

As you can see, DEM would have outperformed the MSCI Emerging Markets Index (the benchmark for this category) over the past 1, 5, and 10-year periods. To put those numbers in perspective, consider this: A hypothetical $10,000 investment in Wisdom Tree's new index would now be worth roughly $41,000 — versus just $24,000 for the traditional MSCI Emerging Markets Index. Of course, these figures do not include the impact of taxes or fees, but they do suggest that DEM will be very competitive with other emerging market funds.

Our View —> Emerging markets offer tremendous upside potential, but also considerable risks and volatility — conservative investors may want to keep their exposure to this sector to a minimum. However, dividends are not only a tried-and-true signal of corporate strength, but can also provide some stability in a difficult market. As such, shareholders of this dividend-focused fund are likely to see relatively milder price swings and stronger risk-adjusted returns than others in the category. We're going to follow this fund closely in the coming months, and we may consider it as a candidate for one of our model portfolios.