Academic research, notably the Fama and French Three Factor Model, and historic data have shown that smaller companies typically outperformed larger companies over time as more nimble, smaller businesses have more room to quickly expand. Additionally, many argued that there are inefficiencies in the market as investors mispriced the value factor, which leaves these types of companies open to outperform over the long-term.
The resulting earnings-weighted index-based strategy have allowed investors to generate returns that have beaten both active and passive competitions for the past decade.
For instance over the past decade, EZM has outperformed 99% of its peer group in its respective Morningstar category, EES has outperformed 88% of its peers, EXT outperformed 87% of its peers and EPS outperformed 80% of peers.
“WisdomTree is one of the few smart beta providers with a proven performance record over the past decade,” Luciano Siracusano, WisdomTree’s Chief Investment Strategist, said in a note. “Ten years of real-time results are a significant milestone for our earnings-weighted ETFs and a testament to the strength of this strategy across a mix of market conditions. By weighting profitable companies based on the earnings they generate, WisdomTree has created broad exposures to major U.S. equity classes, while helping investors generate low-fee alpha in the core of their allocations.”