In aggregate, countries that outperformed the broad Index had returns that ranged from 50% to approximately 77%. Three of the four best country returns were in the peripheral European countries Italy, Ireland and Spain. This speaks to the recovery that occurred in the bond yield spreads for these countries as well. In aggregate, these outperforming countries saw their weight reduced by 10.5 percentage points.
The Foundation of this Process Rests on Fundamentals
Market-capitalization-weighted indexes tend to hold greater exposures to securities (therefore also to countries and sectors) that have appreciated in price because this also leads to an increase in market capitalization. What is happening in WT Europe Small is that weight is being lowered to sectors—and even more notably, to countries—that have outperformed, and weight is being added to sectors and countries that have underperformed. Why is this? Because these are precisely the sectors and countries that have seen greater relative dividend growth.
For the full research on the WisdomTree European Indexes rebalance, click here.
Important Risks Related to this Article
Investments focused in Europe are increasing the impact of events and developments associated with the region, which can adversely affect performance. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty.