|
Wisdom Tree ETF’S
These ETF’s use a method designed by Professor Jeremy
Siegel of the Wharton School of Economics that emphasizes
fundamental weighting.
Market cap-weighted indexes depend on the Efficient Market
Hypothesis, a theory that states that if markets are efficient,
market-cap weighted indexes offer investors the best risk/return
potential. But the Efficient Market Hypothesis is just that - a
theory. Stocks are not always priced efficiently.
The "Noisy Market Hypothesis"
WisdomTree believes that security prices can deviate from
their fair value for a number of reasons unrelated to the
underlying value of a company, including:
Speculation from momentum traders
Overreactions by investors based on rumors or inaccurate
information
Sell decisions motivated by tax reasons or a need for cash
WisdomTree calls these temporary shocks "noise" and
believes this noise cause stocks to become overvalued.
The Over/Under Dilema
Because market cap-weighted indexes provide more weight to
stocks with the highest market capitalization, WisdomTree believes
they tend to become overweighted in overvalued stocks and
underweighted in undervalued stocks. Fundamentally weighted
indexes are designed to avoid this issue. In contrast to
cap-weighted indexing, fundamental indexes anchor the initial
weights of individual stocks to some metric of fundamental value.
WisdomTree studied the approach and determined that an effective
approach is simple: weighting by the Dividend Stream.
DIVIDEND STREAM
U.S. companies:
Have a regular cash dividend
Can include Real Estate
Have a market cap of at least 100 million dollars
Must trade consistently
Selection criteria for the WisdomTree International
dividend indexes are essentially the same as for the domestic
indexes, with the following additional requirements:
Non-U.S. companies must have paid a minimum of $5 million
in cash dividends during the 12 months prior to the screening
period
Non-U.S. securities must have traded a minimum of 250,000
shares per month for each of the six months prior to the screening
period
WisdomTree international indexes are weighted using annual
cash dividends paid on shares of common stock rather than
projected dividends |