It is amazing to me that some of our dividend
-focused strategies are already going to hit their 10-year anniversary of live performance history on June 16, 2016. Time really does fly. To put things into context, on June 16, 2006:
• The U.S. 3-Month Treasury Bill
had an interest rate
of 4.9%. (As of March 31, 2016, it was at 0.19%.)1
• The S&P 500 Index
closed at 1,252. (As of March 31, 2016, it was at 2,059.)2
• There was no such term as “smart beta
just as there was no such thing as an iPhone4
or an iPad5
—three things that it would be difficult to imagine not hearing multiple references to each and every day, at least if you work in financial services and are tasked with developing innovative approaches to indexing.
So, how have our strategies done compared to their respective peer group?
Average Annual Returns
WisdomTree's Results vs. Respective Morningstar Peer Groups
• Impressive “Since Inception” Results:
Between June 16, 2006, and March 31, 2016, a LOT has happened in U.S. equity markets. Any equity strategy would have been tested by the large upward or downward moves. In our opinion, over such a period it is difficult to beat more than half of managers in a respective peer group.
• Remarkable Five-Year Results:
For the five years ended March 31, 2016, every single WisdomTree Fund we show beat more than 90% of its respective peer group. DHS
all beat 99% of their respective categories over this time frame.
• Strong Results Thus Far in 2016:
In this volatile
quarter, many of WisdomTree’s domestic dividend Funds were able to outperform significant portions of their peer groups. In the Large Value
outperformed around 85% of their peers, while DTN
beat more than 95% of their peers. In the Small Value and Mid-Cap Value categories, DES
beat 95% while DON
beat an impressive 98% of its peer group.6
Prospects for 2016
It is important to put these strategies in their appropriate context in order to understand and frame the potential paths of performance that might be observed. The Indexes they track:
• Are not growth or momentum
Indexes—and we saw that growth and momentum were two avenues of outperformance in 2015. While these trends may not continue in 2016, usually in times of volatility, like we’ve seen thus far in 2016, a focus on dividend-paying stocks has tended to provide some degree of relative outperformance.
• Are focused solely on dividend payers. We cited at the outset that the period of nearly 10 years during which these Indexes have been live has seen the 3-Month T-bill go from an interest rate of almost 5.0% to approximately 20 basis points (bps)
. Lower interest rates are supportive for high-dividend7
stocks, as individuals search for sources of income outside low-yielding fixed income. If markets are volatile and risk-off
sentiment becomes more pervasive than risk-on
sentiment, interest rates may remain lower for longer and ultimately continue to provide a supportive element for income-generating equity approaches.
• Are flexible, in that they are rebalanced
once a year to reflect the conditions of the dividend-paying landscape as they exist at that time. One example of this is the Information Technology sector. This represented a very low exposure in 2006, when many large companies in this sector were not paying dividends. As of the most recent Index screening date—November 30, 2015—many of these firms had begun paying dividends, allowing them to be considered for inclusion since these Indexes do not require multiple years of past dividend history for their constituents.
Sources of uncertainty—be it the U.S. presidential election, China’s growth prospects, oil price levels or other items yet to enter the forefront of our attention span—may lead to continued volatility. Dividend-focused strategies may therefore remain at the forefront.
Source: While it’s quite difficult to indicate the first use of the term “smart beta,” Towers Watson is credited with coining the phrase and wrote “Understanding Smart Beta” in July 2013.
Source: “Apple Reinvents the Phone with iPhone,” Macworld San Francisco press release, 1/9/07.
Source: “Apple Launches iPad,” Apple press release, 1/27/10.
Paragraph refers to the quarter ending 3/31/16.
High dividend: Refers to a component of the methodology of the WisdomTree High Dividend Index
, which selects the 30% highest-yielding stocks from the WisdomTree Dividend Index
universe on an annual basis.