“In 616 of the 679 10-year periods from 1926 through to the end of 1992, the cheap stocks outperformed the expensive stocks, with the median performance advantage greater than 500 basis points (bps) per year,” said WisdomTree in a note out Thursday. “But recent returns have been trending down as we saw earlier with the recent single worst decade for low-P/B stocks compared to high-P/B stocks.”
Evaluating EPS ETF
EPS holds nearly 500 stocks, but its sector weights differ from those of the S&P 500. As is the case with many value funds, the largest sector weight in EPS is financial services. That sector commands over 22% of the fund’s weight. Technology and healthcare stocks combine for almost 31% of the fund’s roster. EPS’s overweight in technology stocks relative to other value strategies is a potential benefit for investors.
“It was primarily sector tilts that caused the lagging performance for Russell Value. P/B sorting of the market as a value strategy results in chronic sector tilts, particularly toward Financial stocks and away from Technology stocks,” according to WisdomTree. “On average, the Russell 1000 Value Index has been overweight Financials by 11%, and underweight Information Technology by 10% over last decade.”
Over the past three years, EPS is up 49.30% compared to 41.90% for the Russell 1000 Value Index.
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