P/E Distribution
• More Weight to Lower-Priced Stocks – The WisdomTree Earnings 500 Fund has almost 75% of its weight in the two lowest-priced quartiles, which is over 17% more weight than the S&P 500 Index. There is a natural tendency of earnings-weighted approaches to reduce weight to stocks whose prices have appreciated at a faster rate than their earnings, and concurrently to increase weight to stocks that have fallen in price despite exhibiting positive earnings growth.
• Less Weight to Higher-Priced Stocks – WisdomTree’s 17% over-weight to lower-priced stocks comes from a 17% under-weight to the higher-priced segment of the market. EPS also has less than half the weight of the S&P 500 to stocks that fall in the highest P/E ratio quartile.
• Negative Earnings and Speculative Stocks – Although profitability may fluctuate throughout the year, at each annual rebalance WisdomTree requires companies to be profitable before inclusion. This requirement limits the weight to firms we feel tend to be more speculative and of lower quality to zero. Although the weight to unprofitable firms is currently low for the S&P 500 Index as well, the index does not screen for profitability on an annual basis, so that number could potentially rise in times of market stress.
1Source: Bloomberg, 3/9/09–5/21/15.
Important Risks Related to this Article
Funds focusing their investments on certain sectors increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.