WisdomTree has joined the multi-factor smart beta exchange traded fund game after rolling out its first U.S.-focused equity play that screens for various time-tested variables to potentially enhance returns and diminish drawdowns.
WisdomTree recently launched the WisdomTree U.S. Multifactor Fund (BATS:USMF), which comes with a 0.28% expense ratio.
The U.S. Multifactor Fund tries to reflect the performance of the WisdomTree U.S. Multifactor Index, which is generally comprised of 200 U.S. companies screened for fundamental factors value and quality, along with technical factors momentum and correlation.
Value is determined by fundamental valuation ratios, such as price-to-book, price-to-sales, price-to-earnings. Quality is determined by profitability ratios and the growth of these ratios over time, including return on equity and return on assets. Momentum is determined by a stock’s risk adjusted returns over multiple periods of time. Lastly, correlation is defined as each company’s correlation with a broad market index.
Components are also weighted by their inverse volatility over the past 12 month period through measuring the standard deviation over the past 12 months. Holdings with lower volatility receive higher weights.
“WisdomTree’s existing suite of dividend- and earnings-weighted ETFs have typically tapped into the smart beta factors of value, quality and size and, in many instances, have outperformed their market capitalization-weighted benchmarks, while exhibiting relatively low tracking error against those benchmarks,” Luciano Siracusano, Chief Investment Strategist at WisdomTree, explained in a note. “But, for investors willing to assume higher tracking error relative to traditional market capitalization-weighted benchmarks, a multifactor approach, such as the WisdomTree U.S. Multifactor Fund, has the potential to enhance returns, while providing greater factor diversification and thus, may lower volatility compared to single-factor approaches.”
Sector weights include information technology 23.5%, financials 14.6%, health care 13.7%, consumer discretionary 13.3%, industrials 10.5%, consumer staples 9.8%, energy 5.4%, materials 3.4%, utilities 3.3%, telecom 2.3% and real estate 0.2%.
Top holdings include Oracle 1.4%, Harris Corp. 1.3%, Exxon Mobil 1.3%, Broadridge Financial Solutions 1.3% and Chevron 1.2%.
For more information on new fund products, visit our new ETFs category.