Small-cap stocks and the corresponding ETFs are delivering for investors. That includes some smart beta strategies, such as the WisdomTree SmallCap Earnings Fund (NYSEArca: EES).
EESEES, which weights its components by earnings, is up nearly 20% this year. The fund is one of several earnings-weighted products from WisdomTree, which also offers the WisdomTree Total Earnings Fund ETF (NYSEArca: EXT) and WisdomTree Earnings 500 Fund (NYSEArca: EPS), among others.
Small-capitalization stocks have attracted a lot of attention on the escalating trade tensions, fueled by fears over a potential slowdown in global growth. Consequently, many anticipated that small-caps could weather the storm as large multi-nationals with a large global footprint suffered from trade disputes.
EES’s underlying index the, WisdomTree U.S. Earnings Index, “only includes companies with proven profitability, weighted by the earnings that they’ve generated. Valuation risk is also mitigated here, but the approach is broader and more core-oriented, capturing growth companies that may not pay dividends but that do have positive profits,” said WisdomTree in a recent note.
What’s Next for Indexing Methodology
Due to this particular indexing methodology, the ETFs lean toward value and quality factors, and within the mid- and small-cap ETFs, the size factor, which have all been historically associated with excess returns compared to the broader market over the long-haul.