As the first quarter comes to an end and the market readies for the upcoming earnings season, investors may look to a suite of outperforming earnings-based exchange traded fund strategies that have been around for a decade.
March 31 marked the ten-year anniversary of the line of WisdomTree domestic earnings family of ETFs, including the WisdomTree MidCap Earnings Fund (NYSEArca: EZM), WisdomTree SmallCap Earnings Fund (NYSEArca: EES), WisdomTree Total Earnings Fund ETF (NYSEArca: EXT) and WisdomTree Earnings 500 Fund (NYSEArca: EPS), which have outperformed the vast majority of peers in their respective Morningstar categories over the decade-long period.
These earnings-based ETF strategies were among the first alternative index based or what we now consider smart beta index ETFs that helped provide investors an alternative to traditional market capitalization-weighted indices.
Specifically, the ETFs track earnings-weighted indices that screen for positive cumulative earnings over their most recent four fiscal quarter period and assigns weights to components to reflect the proportionate share of the aggregate learning’s each company generated, so those with greater earnings have larger weights. 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.