TCTZF - DGRE: This Actively Managed ETF Has Yet To Prove Itself
Summary
- DGRE is an actively managed dividend ETF in emerging markets.
- Like many EM funds, it is heavily exposed to risks related to China.
- It is well diversified across sectors.
- Past performance since reshuffling is very close to the broader index fund EEM.
This dividend ETF article series aims at evaluating products regarding the relative past performance of their strategies and quality of their current portfolios. As holdings and their weights change over time, reviews may be updated when necessary.
DGRE strategy and portfolio
The WisdomTree Emerging Markets Quality Dividend Growth Fund ( DGRE ) was launched on 08/01/2013. However, it has changed strategies on October 19, 2018, as noted on its presentation page . Before this date, it was tracking the WisdomTree Emerging Markets Quality Dividend Growth Index. Then, it became an actively managed fund. Therefore, historical data and performance prior to 10/19/2018 are irrelevant to assess the current strategy. As of writing, the fund has 310 holdings, a 12-month trailing yield of 4.1% and an expense ratio of 0.32%. Distributions are paid quarterly. The net asset value (about $88 million) and the average trading volume (about 33k shares/day) are quite low for an ETF. Using limit orders is absolutely necessary.
As described by WisdomTree, the fund “ is actively managed using a model-based approach ”. It implements “ a long-term approach to investing, seeks to identify dividend-paying companies with strong corporate profitability and sustainable growth characteristics ”. The turnover rate was 42% of the average portfolio value in the last fiscal year.
The fund is mostly invested in large and mega cap companies (about 86% of asset value). China is by far the heaviest country with 28.5%, followed by India (18.4%) and Taiwan (17.9%). Other countries are below 9%. Exposure to geopolitical and regulatory risks related to China is very high: the aggregate weight of China, Taiwan and Hong-Kong is 49.4%.
DGRE country allocation (chart: author; data: WisdomTree.)
The heaviest sector is technology (20.7%), followed by materials (12.4%). Other sectors are below 9%.
DGRE sector breakdown (chart: author; data: Fidelity)
The top 10 holdings, listed below, represent 23% of asset value. Each of the top 2 names weighs about 6%: Tencent ( OTCPK:TCEHY ) and Taiwan Semiconductor Manufacturing ( TSM ). Exposure to risks specific to other individual companies is low.
| Name |
| Ticker |
| Weight |
| Tencent Holdings Ltd |
| 700 HK |
| 6.17% |
| Taiwan Semiconductor Manufacturing Co Ltd |
| 2330 TT |
| 6.08% |
| Samsung Electronics Co Ltd |
| 005930 KS |
| 3.39% |
| Infosys Ltd |
| INFO IB |
| 1.27% |
| Vale SA |
| VALE3 BS |
| 1.14% |
| Zhongsheng Group Holdings Ltd |
| 881 HK |
| 1.04% |
| ANTA Sports Products Ltd |
| 2020 HK |
| 1.02% |
| ENN Energy Holdings Ltd |
| 2688 HK |
| 1.00% |
| Tata Consultancy Services Ltd |
| TCS IB |
| 0.95% |
| Grupo Bimbo SAB de CV |
| BIMBOA MM |
| 0.93% |
Past performance compared to competitors
The next chart compares DGRE with other emerging markets funds since it became an actively managed fund (10/19/2018), in total return:
- The iShares MSCI Emerging Markets ETF ( EEM )
- The WisdomTree Emerging Markets High Dividend Fund ( DEM ), reviewed here
- The Global X MSCI SuperDividend Emerging Markets ETF ( SDEM ), reviewed here
- The WisdomTree Emerging Markets SmallCap Dividend Fund ( DGS ), reviewed here .
DGRE vs. Emerging Market ETFs since Oct. 2018 (Portfolio123)
DGRE is in the middle of the pack. It beats by a significant margin the high-yield fund SDEM, but lags the small-cap fund DGS. In this period, it has followed quite closely the broad emerging market fund EEM.
The ranking remains the same in the complicated market conditions of the last 12 months:
DGRE vs. Emerging Market ETFs, last 12 months (Portfolio123)
Excluding dividends, the share price return since inception is close to flat. Once again, it has followed almost the same path as EEM.
DGRE, EEM share price since Oct. 2018 (Seeking Alpha)
Since the fund was reshuffled, distributions went up from $0.61 per share in 2019 to $0.93 in 2022. It means an excellent annualized growth rate of 15%. However, this is a short period: I am not sure it is representative of future dividend growth.
Distribution per share (Seeking Alpha)
Takeaway
DGRE is an actively managed ETF invested in over 300 dividend-paying companies listed in emerging markets. It was launched in 2013, but only data since October 2018 are relevant to the current strategy. Almost half of asset value is directly exposed to geopolitical and regulatory risks related to China. Technology represents a bit more than 20% of asset value, but it is well-diversified across sectors. Since it was reshuffled, DGRE has been very close to EEM in performance at every point in time. I can’t say it’s a bad fund but, based on this 3-year history, it doesn’t seem to bring added value to a broader, index-based, emerging market ETF. The actively managed strategy has yet to prove itself. For transparency, a dividend-oriented part of my equity investments is split between a passive ETF allocation and my actively managed Stability portfolio (14 stocks), disclosed and updated in Quantitative Risk & Value.
For further details see:
DGRE: This Actively Managed ETF Has Yet To Prove Itself