A key differentiator of the WisdomTree Index methodology is our annual rebalance to focus on changes in relative value. In this blog, we will zoom in on how this approach led to changes in exposure in the WisdomTree Europe SmallCap Dividend Index (WT Europe Small)—an Index that had some of the strongest gains since the last rebalance. In particular, WT Europe Small was up over 50% since the implementation date of the last rebalance (June 21, 2013).
Below is a look at how the Index changed both by sector and by country—with a view to how these segments of the market performed. Typically, the strongest-performing parts of the market will see their weight reduced at the rebalance unless their dividend growth matched those strong increases. And that is what you see in each of the cases below.
Figure 1: Changes in Sector Exposure for WT Europe Small
Utilities and Industrials saw the largest incremental increases in weight. These were underperforming sectors; it makes sense that exposure would be increased to sectors that had underperformed. The largest weight reductions occurred in Consumer Discretionary and Telecommunication Services. The Telecom sector in particular had a blowout year, with the stocks in WT Europe Small in this sector up nearly 100%. No other sector had anything close to this performance.
Figure 2: Changes in Country Exposure for WT Europe Small