Investors looking for value in developed markets outside the U.S., and there is some to be had, may want to consider an active, multi-factor approach. The WisdomTree International Multifactor Fund (NYSEArca: DWMF) helps with that objective.
DWMF uses a transparent actively-managed strategy, investing in developed market equity securities, excluding the U.S. and Canada, that have the highest potential for returns based on proprietary measures. The fund is just over a year old and has been a solid performer since inception.
“One year ago, WisdomTree introduced a unique way of investing in developed international equity markets based on an analysis of technical and fundamental factors,” said WisdomTree in a recent note. “Since inception, the WisdomTree International Multifactor Fund (DWMF) has amassed over 359 basis points (bps) of outperformance against the MSCI EAFE Index (on a net return basis), proving there is no need to settle for underwhelming returns just because the region has little to offer.”
DWMF’s Secret Sauce
DWMF employs a proprietary investment strategy which includes a mix of fundamental and technical factors that create a proprietary stock selection and weighting model. The approach involves screening a broad universe of stocks based on a composite multifactor score, a volatility score, and sector and country overweight and underweight bands to create a high active share portfolio in pursuit of outperformance.
“WisdomTree’s approach blends both technical and fundamental analysis. It scores companies based on a combination of value, quality, momentum and correlation measurements,” according to the issuer. “The result is a carefully selected basket of about 200 holdings with the highest composite scores, split between large- and mid-cap companies with diversity by both sector and country. The icing on the cake is a dynamic currency hedge that uses carry, value and momentum factors to mitigate the risks associated with weakening developed market currencies.”
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DWMF also incorporates a dynamic currency overlay, building upon the dynamic currency hedging strategies WisdomTree ETFs already use, but with an active approach to evaluating and implementing currency hedge ratios.
“Since DWMF’s inception, both the stock selection and the dynamic currency hedge have worked together to achieve DWMF’s outperformance,” notes WisdomTree. “The interaction between these two has contributed to the strategy’s lower beta, which has been especially valuable during periods of heightened volatility, such as December 2018, May 2019 and most recently in August 2019. Keep in mind, when markets are ripe with uncertainty and recession anxieties are top of mind, downside protection can be just as valuable as outperformance itself.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.