WisdomTree Launches Two Active Multifactor ETFs

Wisdomtree WETF, one of the largest exchange traded product (ETP) sponsors in the United States,  launched two transparent actively managed multi factor ETFs - Emerging Markets Multifactor Fund EMMF and International Multifactor Fund DWMF - on Aug 10. Both are listed on the NYSE (see all Broad Emerging Market ETFs). 

 

Inside EMMF

 

The fund seeks capital appreciation by investing in equity securities of emerging market countries which have the highest composite score based on the two fundamental factors, value and quality and two technical factors, momentum and correlation. The currency risk is managed through dynamic currency hedging. The fund has 172 holdings. ishares India 50 ETFINDY and ishares MSCI India ETFINDA are the top two weight holders weighing 3.92% and 3.91%, respectively.

 

The major countries in focus are China and Taiwan with weights of 22.69% and 17.22%, respectively. Information technology is targeted majorly with 23.28% while Financials (15.66%) and Consumer Staples (11.25%) are the other double-digit weight holders.

 

Since its inception, the fund has amassed $9.90 million with an expense ratio of 0.48% (read: EM ETFs Rebound in July: Value Trap or Value Play?)

 

Inside DWMF

 

This fund seeks capital appreciation through investing in the developed market equities excluding the United States and Canada. There are 202 holdings in the basket with Swiss Life Holding AG having the highest weight of 1%.The three countries that occupy double-digit weights in the fund are Japan (27.96%), United Kingdom (13.33%) and France(10.16%). Industrials are the major sectoral target with a weight of 19.36%. The currency risk is managed through dynamic currency hedging. The fund has accumulated $2.50 million in AUM with an expense ratio of 0.38% (read: Global Manufacturing in a Tight Spot: ETFs to Watch)

 

How do they fit into a portfolio?

 

EMMF and DWMF utilize a self-created investment strategy that incorporates fundamental and technical factors to create a proprietary stock selection and weighting model. This appears to be a great approach in the current market conditions where both emerging and international markets are struggling.

 

The U.S. rates have been rising lately. The U.S. dollar is strengthening amid tumbling emerging market currencies. The lira has fallen more than 40% in value this year due to the unsure economic developments in the country and the dispute with the United States over the fate of the jailed American Pastor. Globally, the concerns regarding sell-off in Lira have led to the emerging market currencies facing multi year lows. The trade tensions between the United States and several other countries have led to jeopardy in global trade.

 

Developed economies are slowing down this year. The Eurozone grew 0.4% sequentially in Q1, following a 0.7% advancement in Q4 of 2017.Canada GDP grew 0.3% in the first quarter, after an uptick of 0.4% in each of the last two quarters. It was the most sluggish expansion since the second quarter of 2016. Meanwhile, the Japanese economy saw its first contraction in Q1 since the December quarter of 2015 (read: Top 5 Foreign ETFs of Q2).

 

After reaching 3.1% in both 2017 and 2018, global growth is expected to decelerate over the next two years as global slack dissipates, major central banks remove policy accommodation, and the recovery in commodity exporters matures. Amid moderating international trade and tightening global financing conditions, growth in emerging market and developing economies is projected to plateau, reaching 4.7% in 2019 and 2020, up from 4.5% in 2018 as per the World Bank.

 

Competition

 

The two top most representatives of the emerging market ETFs in terms of the AUM, iShares Core MSCI Emerging Markets ETF IEMG and Vanguard FTSE Emerging Markets ETF VWO have performed adversely with a six-month return of - 9.06% and -9.17% respectively (as on Aug 13).

 

The two representatives of the developed market ETFs, iShares MSCI EAFE ETF EFA and Vanguard FTSE Developed Markets ETF VEA with respect to the highest net assets held have also performed adversely with EFA having a six-month return of -2.62% and VEA - 2.59% (as on Aug 13).

 

The passive nature of these funds being dependent on the tracked index is overcome with the actively managed EMMF and DWMF.Jeremy Schwartz, WisdomTree Director of Research said, “There are many higher-cost actively managed funds that tend to hug the benchmark with modest tilts toward active picks. In contrast, EMMF and DWMF are expected to have an active share greater than 80%, and we believe these differentials, combined with our multifactor model, create an opportunity to add value over time.”

 

On cost front, EMMF is convincingly beaten by the other ETFs, VWO and IEMG, which have 0.14% of expense ratio.

 

VEA has the lowest expense ratio of 7 bps when compared to DWMF.

 

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WisdomTree Investments, Inc. (WETF) : Free Stock Analysis Report
 
EMG MKT FREE AS (EFA): ETF Research Reports
 
ISHARS-SP INDIA (INDY): ETF Research Reports
 
ISHARS-M INDIA (INDA): ETF Research Reports
 
VANGD-FTSE EM (VWO): ETF Research Reports
 
VANGD-FTSE DV M (VEA): ETF Research Reports
 
ISHARS-CR MS EM (IEMG): ETF Research Reports
 
WISDM-EM MUL FF (EMMF): ETF Research Reports
 
WISDM-INT MUL F (DWMF): ETF Research Reports
 
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