Evidence That a Thoughtful Rules-Based Methodology Can Generate Significant Outperformance

THE INDICATED DIVIDEND STREAM OF U.S. EQUITIES REACHES NEW RECORD HIGH
Indicated dividends of companies in the United States reached a new record high of $295.5 billion, as measured by the dividends on the WisdomTree Dividend Index on March 14, 2012. This figure is nearly 2.5% above the prior peak of $288.53 billion, observed at the November 30, 2007, index rebalance, and over 34% above the indicated dividend stream’s bottom on November 30, 2009.

Japan Currency in Focus as Bank of Japan Acts Again
The Bank of Japan (BOJ) recently announced new monetary policy goals that established an inflation target of 1% in its battle to end deflation¹ and stimulate economic growth. The BOJ has been facing an intractable battle to counteract the Japanese economy’s deflationary tendencies, which have contributed to a strengthening yen and a challenging operating market for Japan’s exporting powerhouses.

…and How Long Before They Are Eligible for Inclusion in Various Dividend-Focused Indexes?
On February 23, Apple held its annual shareholder meeting. Prior to the gathering, there was widespread speculation that Apple would announce its first dividend payment since 1995.

2011 represented a difficult year for the performance of both India’s equities and its currency, the rupee. In light of these negative returns, reasoned economic analysis must separate the fundamental, long-term performance drivers from those that are potentially more transient and sentiment based.

After the 2008–09 financial crisis and the periods of subsequent market volatility—notably during the latter part of 2011— investors sought a variety of potential risk-mitigation strategies in an attempt to buttress their portfolios. Within equities, a focus on dividend-paying stocks has been a classic avenue for this type of approach. But where should one look for dividend paying stocks?

Fundamentals versus sentiment Asset class performance in 2011 has been largely driven by sudden, sweeping changes in investor sentiment. These behaviors have largely hidden the resilient fundamentals within emerging market economies, and investors have faced significant headwinds as emerging market currencies have largely weakened against the U.S. dollar.

This Rebalance commentary Discusses:
Part 1: Key Features of the Aggregate Dividend Stream Growth in 2011 by Sector, Part 2: 20 Largest Dividend Payers in the United States, Part 3: S&P 500 Sector Performance [ as of November 30, 2011 ], Part 4: Ten Largest Dividend Initiators/Additions to the WisdomTree Dividend Index, Part 5: Analysis of Sector Changes in Select Indexes, Part 6: Performance Evaluation of the WisdomTree Dividend Indexes Since Inception and in 2011

After more than 20 years of malaise in Japanese equities and in the wake of the devastating earthquake in March that has crippled portions of the economy, we believe it may be worthwhile for investors to take a fresh look at potential opportunities in the third-largest economy in the world (behind the U.S. and China).

2011: A Year of Turmoil and Crisis - An onslaught of events contributed to increased volatility in the financial markets in 2011.

Many investors have become increasingly concerned about the potential for a low-growth global economy and the impact it may have on their investments.

Rebalance Introduction - Every year at the end of August, WisdomTree screens the investable equities of India for the rebalance of its India Earnings Index. This year the Indian equity markets have taken a drubbing.

As investors attempt to cope with uncertainties in the global economy and equity markets, it appears from our analysis of Exchange Traded Fund (ETF) asset flows that many are seeking refuge in dividend-paying U.S. stocks, which are often considered less volatile and more defensive in nature.

One of the most significant ongoing issues casting a dark shadow over the markets in 2011 has been the European debt crisis.

On the heels of the historic S&P downgrade of the U.S. Treasury credit rating, the Federal Reserve announced a new monetary policy target intended to keep its extremely low Federal Funds target rate near zero until the middle of 2013.

Few sectors are as deeply ingrained within almost every aspect of the economy as Financials, specifically banks. Some commentators believe that until the financial sector displays leadership in terms of stronger relative performance over the broader markets, there is little reason to own equities.

Countries can essentially be divided into two categories—those that have natural resource and commodity wealth, and those that must import natural resources. Countries that must import such commodities as oil (i.e., the United States, China and India) suffer during commodity price spikes, while exporters of commodities (i.e., Canada, Russia, Brazil) benefit.

Inflation erodes the purchasing power of money and can negatively influence portfolio returns. Lately, the loose monetary policy embraced by the Federal Reserve in the wake of the financial crisis of 2008 has created anxiety about the purchasing power of the U.S. dollar.

At WisdomTree, we screen for our global Index family annual rebalance on May 31. The global rebalance is designed to reanchor weights to the Dividend Stream of each company.

The fundamentals of the U.S. stock market, when measured by the U.S. indicated Dividend Stream,² have been improving nicely since the market crisis in 2008 and early 2009.

On Monday, April 18, 2011, Standard & Poor’s placed a "negative" outlook on the United States’ AAA credit rating,1 citing the United States government’s failure to address growing short-term deficits, burgeoning entitlements and external borrowing.

Stories of corruption, food inflation and anxiety over a potential oil price shock weighed heavily on India's equity markets and resulted in India experiencing one of the greatest declines of emerging markets countries during the first quarter of 2011

Given the uncertainty surrounding how quickly Japan will be able to rebuild its economy and address the fallout of nuclear reactor issues, it would not have been surprising to see large outflows from the region.

The dramatic run of emerging markets in the recent past has led some to believe that the shunned developed markets could potentially outperform the emerging markets in 2011.

The global financial crisis of 2008 created significant levels of volatility—and opportunity.

Analysts who are the most bearish on the U.S. equity markets point to expensive valuation ratios on the S&P 500, notably the dividend yield, being considerably below its long-term average.