There have been a number of big stories impacting WisdomTree’s global product lineup in 2013 (through September 30):
• Japan: Japanese equities1 have rallied significantly, largely as a result of an aggressive monetary policy and a government commitment to stimulating economic growth.
• U.S. equities2, in particular in the mid- and small-cap segments3 of the market capitalization spectrum, have performed well.
However, there have also been some other stories about similarly strong equity market performance—they just generated significantly less in the way of attention:
• Middle East: Even in the face of geopolitical risk, equity markets4 have delivered strong performance.
• Europe: This market has been through great turmoil in recent years, but potential green shoots have begun to emerge. Small-cap stocks5 have led the European pack.
On the other side of the spectrum are markets that have been lagging significantly. A common theme across the worst-performing markets is either a connection to commodity-oriented companies or the emerging markets.
WisdomTree’s Five Best- and Worst-Performing ETFs through September 30, 2013
Average Annual Returns as of 9/30/2013
The “Bottom 5”
WisdomTree’s five worst-performing ETFs on a year-to-date basis may represent some pockets of underlying relative value—the types of areas where a contrarian investor may want to focus.
• GNAT: This fund focuses on equities within natural resource sectors, and it is the second worst-performing of all WisdomTree’s equity Funds year-to-date. However, if we compare the price-to-earnings (P/E) ratio to the S&P 500 Index, a commonly used benchmark for the performance of U.S. equities, it is nearly 30% lower. Generally speaking, natural resources are necessary inputs to help fuel overall global growth, so this recent negative performance could be an opportunity.
• Emerging Markets: ELD, ICN and EPI all fit a common theme of different ways in which to generate exposure to emerging markets, and in the case of ICN and EPI, to India. Each has a negative return year-to-date. In the case of India, there has been great volatility. A change of leadership at the Reserve Bank of India (RBI) in the beginning of September has been viewed positively, but India’s difficulties are far from solved. ELD, to us, could be the more interesting opportunity, in that its performance year-to-date is down more than other broad-based WisdomTree equity Funds focused on the emerging markets. While certainly not without risk,locally denominated debt in emerging markets has been hard hit during 2013 thus far—and may represent a possible valuation opportunity.
• AUNZ: The Australian and New Zealand economies are strongly connected to commodities—a factor that could have influenced some of the negative performance in 2013 year-to-date. However, the more important factor to note is that the Australian dollar has lost 10.4% against the U.S. dollar over this period, and the Fund’s negative performance can largely be explained by this currency move.
Conclusion
While there is truly no way to predict future inflection points for different funds, we believe it is always interesting to consider both sides of the performance spectrum. Top-performing funds are typically well-noted, garnering significant attention. Much less noted are the bottom performers—and at times these could have the potential to be the top performers of tomorrow.
Data source is Bloomberg unless otherwise noted.
1As represented by the MSCI Japan Local Currency Index.
2As represented by the S&P 500 Index.
3Mid- and small-cap segments are represented by the S&P MidCap 400 and Russell 2000 indexes, respectively.
4As represented by the WisdomTree Middle East Dividend Index.
5As represented by the WisdomTree Europe SmallCap Dividend Index.
Important Risks Related to this Article
There are risks associated with investing, including possible loss of principal. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Investments in real estate involve additional special risks, such as credit risk, interest rate fluctuations and the effect of varied economic conditions. Funds that focus their investments in one country or region may be significantly impacted by events and developments associated with the region, which can adversely affect performance.
Funds focusing on a single sector and/or smaller companies generally experience greater price volatility. Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation, intervention and political developments. Due to the investment strategy of certain Funds, they may make higher capital gain distributions than other ETFs. Please read each Fund’s prospectus for specific details regarding the Fund’s risk profile.