Global Chief Investment Officer
Follow Jeremy Schwartz
There have been a number of big stories across global equity markets in 2013 (through April 30):
have rallied significantly, largely as a result of an aggressive monetary policy
and a government commitment to stimulating economic growth.
• U.S. equities2
are hitting new record highs, led by the more defensively oriented industry sectors.3
However, there have also been some other stories about similarly strong equity market performance—they have just generated significantly less in the way of attention:
• Middle East:
Even in the face of geopolitical risk, equity markets4
have delivered strong performance.
has tended to shrug off uncertainties affecting emerging markets (to which it exports large amounts of natural resources) and continue to push higher.
On the other side of the spectrum are markets that have been lagging significantly. A common theme across the worst-performing markets is either a connection to commodity-oriented companies or the emerging markets.
WisdomTree’s Five Best and Worst-Performing Equity ETFs through April 30, 2013
Average Annual Returns as of 3/31/2013
The “Bottom 5”
WisdomTree’s five worst-performing equity ETFs on a year-to-date basis may represent some pockets of underlying relative value
—the types of areas where a contrarian
investor may want to focus.
This fund focuses on equities within natural resource sectors, and it is the worst-performing of all WisdomTree’s equity funds year-to-date. However, if we compare the price-to-earnings (P/E) ratio
to the S&P 500 Index, a commonly used benchmark for the performance of U.S. equities, it is approximately 20% lower. Generally speaking, natural resources are necessary inputs to fuel overall global growth, so this recent negative performance could be an opportunity.
• Emerging Markets: DEM
, and CHXF
all fit a common theme of different ways in which to generate exposure to emerging markets. Each has a negative return year-to-date. We believe the relative underperformance of emerging market equities could provide an attractive entry point and good relative value compared to the United States, which has been a particularly good performer over the same period.
This is the only positive performer among WisdomTree’s “bottom 5,” and a big reason for its performance issues has been exposure to emerging markets. Developed market growth-oriented equities (measured by the MSCI EAFE Growth Index
) have actually delivered much stronger returns during this period, but DNL was hurt by bringing in some significant emerging market exposure, including companies in Brazil, South Africa, China and Mexico. Also, being under-weight in Japan compared to the MSCI EAFE Growth Index was not helpful.
While there is truly no way to predict future inflection points for different funds, we believe it is always interesting to consider both sides of the performance spectrum. Top-performing funds are typically well-noted, garnering significant attention. Much less noted are the bottom performers—and at times these could have the potential to be the top performers of tomorrow.
As represented by the MSCI Japan Local Currency Index
As represented by the S&P 500 Index
Sectors: S&P 500 Consumer Staples
, Health Care
, Telecommunication Services
and Utilities Indexes
As represented by the WisdomTree Middle East Dividend Index
As represented by the WisdomTree Australia Dividend Index
Important Risks Related to this Article
There are risks associated with investing, including possible loss of principal. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Investments in real estate involve additional special risks, such as credit risk, interest rate fluctuations and the effect of varied economic conditions. Funds that focus their investments in one country or region may be significantly impacted by events and developments associated with the region, which can adversely affect performance. Funds focusing on a single sector and/or smaller companies generally experience greater price volatility. Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation, intervention and political developments. Due to the investment strategy of certain Funds, they may make higher capital gain distributions than other ETFs. Please read the Funds’ prospectus for specific details regarding the Funds’ risk profile. Funds that focus their investments in one country or region may be significantly impacted by events and developments associated with the region which can adversely affect performance. Funds focusing on a single sector and/or smaller companies generally experience greater price volatility. Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation, intervention and political developments. You cannot invest directly in an index.