ETF’s have become highly–regarded for inclusion in investor portfolios – and for the same reasons, they make sense for 401(k) accounts. They offer easy–to–implement, fully transparent, high–quality investment performance, covering the full range of risk and style categories, and are available at significantly lower expenses than most traditional mutual funds.
And now WisdomTree offers you a comprehensive platform – and a choice of pre–built and customizable solutions – that make it easy to use a variety of WisdomTree ETFs and other cost effective investment vehicles to meet your retirement objectives.
The benefits of ETFs in a 401(k)
Your goal in a 401(k) is obviously to create an effective long-term investment strategy for your clients. One of the best ways to do this is to offer participants well designed asset allocation portfolios. ETFs offer several strengths that make them particularly well suited for this purpose:
- Benchmark neutral – ETFs are pure blocks of investments that are style neutral and can cover all of the significant market segments. This makes them an ideal tool for asset allocation.
- Low-cost – ETFs are low cost tools for creating asset allocation portfolios and can often significantly lower costs to participants.
- Omnibus trading – ETFs can be traded on an omnibus basis in a 401(k) plan to substantially reduce or eliminate the normal trading commissions associated with their retail purchase.
- Transparent – ETFs hold underlying securities on a completely transparent basis. They have no 12b-1 fee structure so they are fee transparent, and are entirely suited to the requirement of complete fee disclosure.
- Flexible – To achieve additional diversification, ETF portfolios can be easily combined with other investment options such as low cost actively managed mutual funds.
All ETFs are not created equal.
WisdomTree ETFs offer a unique combination of advantages.
The vast majority of today’s ETFs are market cap-weighted. Which means by design, they buy more of a company’s stock as its price is going up, and sell more as it’s going down. So while common sense says "buy low, and sell high," market cap-weighted ETFs do the opposite. To us, that’s illogical because it can lead to overweighting in overvalued stocks and underweighting in undervalued stocks.
To address this structural flaw of market cap weighting, WisdomTree ETFs are based on fundamental value (Earnings Weighted or Dividend Weighted) metrics. We believe this offers the potential for more profitable, long term investing with less risk than traditional ETFs.
WisdomTree ETFs are also designed to cover both domestic and international market capitalization, can be supplemented with outside mutual funds for increased diversification and are very competitively priced to allow for a low cost investment expense to participants. And only WisdomTree offers you a choice of pre-built or fully customizable solutions using ETFs.