Although central banks often use their holdings of government debt to affect monetary policy, the meteoric rise in the expansion of the BOJ’s balance sheet is unprecedented. With the BOJ continuing to signal its willingness to aggressively stimulate the economy, we highlight here what we believe are the most significant implications of these policies.
European equity markets performed strongly throughout much of 2013 and into the first five months of 2014. While it is difficult to time market tops and bottoms for individual stocks on a consistent basis, we believe there are benefits to undertaking a disciplined practice to rebalance weight based on changes in relative valuation.
A key differentiator of the WisdomTree Index methodology is our annual rebalance to focus on changes in relative value. In this blog, we will zoom in on how this approach led to changes in exposure in the WisdomTree Europe SmallCap Dividend Index (WT Europe Small).
We think it is important to be mindful of how an annual rebalance back to an underlying fundamental such as dividends can help manage valuation risks. With market capitalization-weighted indexes, when constituents increase in price compared to other stocks, they gain greater weight and increase their impact on the performance of the index.
Currency-hedged equity strategies broke onto the exchange-traded fund (ETF) investment scene in late 2012 following significant weakening of the yen, which led to a wide disparity in performance between unhedged and currency-hedged Japanese ETFs.