We used this framework to discuss how small-cap tilted our Indexes are, how value tilted, and how much market risk is inherent in these strategies. Some brief takeaways:
• Size Factor Takeaways: The WisdomTree LargeCap Dividend and Equity Income Indexes indicated size factors more than twice that of the S&P 500 Index. When critics characterize smart beta as being a tilt to small caps, they are clearly not talking about WisdomTree’s large-cap dividend or earnings approaches, which are more large cap than the S&P 500.
• Value Factor Takeaways: No surprise here, WisdomTree’s dividend Indexes have heavy loadings to the value factor. We quantify it across our Indexes and note that some of the value exposures are as large as traditional market cap-weighted value indexes. Yet these Indexes were more than just value strategies, as value lagged over this period and these strategies performed better than value indexes, despite comparable or deeper value loading factors.
One comment that is often made about smart beta indexing methodologies is that they require investors to look under the hood to evaluate the exposures they are getting. We agree and think that as investors learn what factors are driving the results in our smart beta approach, they will find that these new Indexes are efficient means of accessing smart, long-term-oriented investment approaches—at least in our view. To read our full factor analysis on our smart beta approach, click here.
Important Risks Related to this Article
Investments focusing on certain sectors and/or smaller companies increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility.