Making its debut on 02/23/2007, smart beta exchange traded fund WisdomTree U.S. SmallCap ETF (EES) provides investors broad exposure to the Style Box - Small Cap Value category of the market.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is managed by Wisdomtree, and has been able to amass over $538.05 million, which makes it one of the average sized ETFs in the Style Box - Small Cap Value. EES, before fees and expenses, seeks to match the performance of the WisdomTree U.S. SmallCap Earnings Index.
The WisdomTree U.S. SmallCap Index is a fundamentally weighted index that measures the performance of earnings-generating companies within the small-capitalization segment of the U.S. Stock Market.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.38% for EES, making it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 1.44%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
EES's heaviest allocation is in the Consumer Discretionary sector, which is about 22.50% of the portfolio. Its Financials and Industrials round out the top three.
When you look at individual holdings, Mdc Holdings Inc (MDC) accounts for about 0.92% of the fund's total assets, followed by Tri Pointe Group Inc (TPH) and Genworth Financial Inc (GNW).
The top 10 holdings account for about 6.85% of total assets under management.
Performance and Risk
Year-to-date, the WisdomTree U.S. SmallCap ETF has lost about -2.92% so far, and is down about -6.61% over the last 12 months (as of 05/08/2023). EES has traded between $39.17 and $49.11 in this past 52-week period.
EES has a beta of 1.26 and standard deviation of 25.98% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 912 holdings, it effectively diversifies company-specific risk.
WisdomTree U.S. SmallCap ETF is an excellent option for investors seeking to outperform the Style Box - Small Cap Value segment of the market. There are other ETFs in the space which investors could consider as well.
IShares Russell 2000 Value ETF (IWN) tracks Russell 2000 Value Index and the Vanguard Small-Cap Value ETF (VBR) tracks CRSP U.S. Small Cap Value Index. IShares Russell 2000 Value ETF has $10.71 billion in assets, Vanguard Small-Cap Value ETF has $23.21 billion. IWN has an expense ratio of 0.23% and VBR charges 0.07%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Value.
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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