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Director of Research
My trip to Japan reinforced my views that Japan should be one of the most preferred destinations for global investment capital over the coming years. Japanese valuations have come down as Japanese earnings have grown more than stock prices. There is increased coordination from the government and central bank to reignite inflation and end the deflationary slump once and for all.
A common perception is that smart beta indexes always involve a small-cap bias in their construction. This is not true for WisdomTree’s broad-based and large-cap Indexes, which often have a larger-cap bias relative to traditional market cap-weighted indexes. We quantified in this piece the extent of that large-cap bias. We also addressed the comment that smart beta indexes inherently are value-tilted strategies.
Recently, currency-hedged equities have gained traction to neutralize the FX risk and target the local stock market returns. I have been talking to clients about currency-hedged strategies for much of the last five years, and virtually all conversations start like this: “Why should I hedge my currency risk?” But that is perhaps the wrong starting point. A more natural starting point to me is this: Why is it beneficial to add currency risk on top of local equities?
We feel investors could benefit by including exposure to European equities in a diversified portfolio over the long term. With potential economic green shoots perking up in the European landscape, the time could be ripe to consider the tools and options available across European equity indexes.
2013 marked a particularly strong year for equities in the developed international space, which, along with the United States, led the charge among global equity markets. Numerous macroeconomic tailwinds buoyed sentiment surrounding the developed international markets, including the eurozone returning to positive growth in the second quarter of 2013 and the Bank of Japan delivering bold monetary targets, reflecting overall accommodative monetary policies from central banks.
Each year, WisdomTree believes it is important to reset Index weights and exposures away from what has been driven by share price performance and toward what has actually occurred in terms of fundamentals. The following analysis focuses on the WisdomTree Europe Indexes, especially in the small-cap segment.
The WisdomTree annual rebalance is a key element of the added value of WisdomTree’s Index methodology. We interpret Japan’s current valuations and double-digit dividend growth as a very positive indicator of underlying market fundamentals. We believe these fundamentals, coupled with the ongoing third-arrow reforms, should help provide a notable foundation for potential future gains.
WisdomTree has one of the broadest sets of Indexes focused on international equities that are not weighted by market capitalization. In essence, we are looking to illustrate how these Indexes with at least five years of performance history were exposed to various factors.
Recently, European markets have performed strongly, with investors focusing on the economic recovery that has been building momentum. It is becoming difficult to remember that a few short years ago there was widespread debate about whether the European Monetary Union (EMU) would continue to exist.
A wide array of strategies are starting to have live performance histories greater than five years, making them eligible for consideration across a broader clientele. What are these various smart beta index strategies really doing when one looks under the hood?
When investors think of dividends, they tend to think of mature large-cap companies as the primary source, and as a result, we feel that many investors mistakenly overlook potentially attractive income options. Here we will discuss one segment of the market that often gets overlooked in the hunt for income-producing asset classes—mid- and small-cap dividend payers.
WisdomTree has compiled a Japan Strategist roundtable—a compilation of views from three of the most widely followed Japan investment strategists. In separate one-on-one interviews, we asked these strategists to share their views on Japan’s equity markets, the economy, government initiatives and the currency.
WisdomTree conducts the annual rebalance of its U.S. Dividend Index family in December, with the annual screening date occurring on the last trading day of every November. This rebalance provides a plethora of data about how dividends for the U.S. equity markets have changed over time.
The market environment is always changing, with some years notable for their performance extremes. The November 30, 2012, to November 30, 2013, period was quite strong, and we believe that it could be beneficial to take some chips off the table redeploying them into areas that may not have performed as strongly.
Since prime minister Shinzo Abe’s election on December 16, 2012, investors have embraced the economic resurrection plan being referred to as “Abenomics,” sending Japanese stocks higher and the yen lower. A critical aspect of Abe’s plan is to extinguish the deflationary forces that have gripped Japan’s economy for the last 15 years. In light of the committed pursuit of Abenomics, we believe there are three important trends investors should be positioning for.
Europe’s economy experienced six straight quarters of negative economic growth—or contraction—before returning to a positive growth rate—or expansion—in the second quarter of 2013. The recovery in Europe has been supported by accommodative monetary policy, low inflation and a moderation in fiscal austerity. Consumer spending has improved, and manufacturing surveys are pointing toward expansion. This stabilization of the European economy is encouraging, and many have begun to look for investment opportunities arising from this nascent recovery.
In this market insight, we highlight the recent performance of the small-capitalization market around the globe and discuss important considerations for further allocations from today’s levels. Adding exposure to small caps can offer increased diversification and return potential, but there are critical differences in investment strategies.
Investors should carefully consider the investment objectives, risks, charges and expenses of the Funds before investing. To obtain a prospectus containing this and other important information, please call 1-866-909-WISE (9473) or click here to view or download a prospectus online. Read the prospectus carefully before you invest. There are risks involved with investing including the possible loss of principal. Past performance does not guarantee future results.
You cannot invest directly in an index.
There are risks associated with investing, including possible loss of principal. Foreign investing involves currency, political and economic risk. Funds focusing on a single country, sector and/or funds that emphasize investments in smaller companies may experience greater price volatility. Investments in emerging markets, real estate, currency, fixed income and alternative investments include additional risks. Due to the investment strategy of certain Funds, they may make higher capital gain distributions than other ETFs. Please see prospectus for discussion of risks.
Jeremy Schwartz is a registered representative of ALPS Distributors, Inc.
WisdomTree Funds are distributed by ALPS Distributors Inc.