Common sense says "buy low, and sell high." By design, market cap-weighted ETFs do the opposite.
Headquartered in New York, WisdomTree Investments was founded in 1988 and is an index developer as well as an ETF provider. Because the WisdomTree ETFs track proprietary indices that are dividend-weighted and/or earnings-weighted, they claim that their ETFs address the structural flaw built into market cap-weighted indices that most ETFs track. Current ETF offerings include both domestic and international earnings and dividend funds as well as sector dividend funds and currency funds. They currently have 43 U.S. listed ETF’s.
WisdomTree, founded Michael Steinhardt and Jeremy Seigel, uses a rules-based methodology to select and weight companies in our ETFs by a measure of fundamental value — instead of stock price alone. After researching all of the fundamental indicators of value, WisdomTree believes the most-effective metrics are cash dividends, or core earnings.
Each offers a compelling index approach for several reasons:
- From 1926 through 2004, reinvestment of dividends accounted for 96% of the stock market’s total return after inflation*.
- Weighting by dividends can raise a portfolio’s dividend yield. Research shows that portfolios comprised of the highest dividend-yielding stocks within the S&P 500** Index have historically outperformed the S&P 500 Index as a whole.
- Cash dividends provide an objective measure of a company’s value and profitability — one than cannot be manipulated.
- Potential bear market protection — as stock prices fall, investors can buy more shares with reinvested dividends.
- Only profitable companies are eligible for inclusion. This helps screen for money-losing and speculative companies, both of which can make an index more volatile.
- Weighting by earnings can lower a portfolio’s overall P/E Ratio1. Research shows that portfolios comprised of low P/E stocks within the S&P 500 Index have historically outperformed the S&P 500 Index as a whole*
- WisdomTree Earnings ETFs utilize S&P "core earnings2" to help eliminate one-time earnings events and other distortions.
With fundamentally weighted ETFs, we believe we’ve developed a wiser approach to ETF investments that offers the potential for more profitable long-term investing — with less risk — than the capitalization-weighted options comprising 95% of today’s ETF market.