Our Best- and Worst-Performing Equity ETFs in 2017
We currently have 61 exchange-traded funds (ETFs) focused on equities that have been in live trading since before December 31, 2016. Looking at the five best- and the five worst-performing ETFs from this list in 2017 could help us gain better insight regarding what is driving global equity performance this year.
Average Annual Total Returns as of September 30, 2017
- WisdomTree China ex-State-Owned Enterprises Fund (CXSE): China’s equity market has been on fire in 2017. CXSE tracks the WisdomTree China ex-State-Owned Enterprises Index, which eliminates exposure to companies in which China’s government has a greater than 20% ownership stake. Looking at the top five holdings of CXSE as of November 21, 2017, we saw that three of them, Ping An Insurance Group, Alibaba Group and Tencent Holdings, had greater than 100% returns in U.S. dollar terms for this year-to-date period. In fact, nearly 40% of the fund’s exposure was in firms that had seen their shares appreciate by more than 100% in 2017. While it’s impossible to know how far this incredible rally can go, we believe that in a bigger-picture sense it speaks to the potential of China’s new economy tech firms and their strong growth potential1.
- WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE) & WisdomTree Emerging Markets Consumer Growth Fund (EMCG): XSOE tracks the WisdomTree Emerging Markets ex-State-Owned Enterprises Index, which takes a broad-based exposure to emerging markets but eliminates those constituents that have greater than 20% ownership by government entities. EMCG tracks the total return performance of the WisdomTree Emerging Markets Consumer Growth Index, an exposure that emphasizes a consumer-focused tilt to a broad-based emerging markets exposure. Both Indexes shift away from the very large market capitalization “old-economy” companies, like those in the Energy and Materials sectors, that tend to either operate globally or be majority-owned by governments, and this has worked well in 2017.
- WisdomTree India Earnings Fund (EPI): EPI tracks the WisdomTree India Earnings Index, and on its February 22, 2008, inception, it was the first U.S.-listed ETF that gave investors exposure to physical shares on India’s local equity market.2 As with any emerging market country in the last period of nearly 10 years, there have been ebbs and flows, but we focus a lot on India’s potential and are extremely encouraged by many of the reforms and developments we’ve seen this year. For a deeper look at our thoughts on India, please click here.
- WisdomTree Europe Domestic Economy Fund (EDOM): EDOM tracks the WisdomTree Europe Domestic Economy Index. In 2017, we’ve found that investors have been attracted to the idea of European equities from a few angles. 1) There was an appreciation of an uptick in economic sentiment within Europe. 2) There was a perception of increased aggregate demand occurring on the ground within Europe. 3) There was a desire for eurozone or at least “ex-United Kingdom” exposure, due largely to Brexit’s uncertainties. 4) With the euro appreciating more than 11.6% year-to-date versus the dollar through November 21, 2017, we saw a desire for exposure to the currency among some investors.3 The WisdomTree Europe Domestic Economy Index ticks all of these boxes.
Five Worst-Performing Equity Funds at WisdomTree Still Positive
The first thing that stands out to us for 2017 through November 21 is the fact that all five of WisdomTree’s worst-performing ETFs still delivered positive returns. What this really indicates is how strongly global equities have performed over this period.
- WisdomTree Middle East Dividend Fund (GULF): GULF tracks the WisdomTree Middle East Dividend Index, which, most interestingly, just added exposure to Saudi Arabia’s equities, which until recently were inaccessible to foreign investors. The price-to-earnings ratio for this Index is between 10x to 11x both forward and trailing 12-month earnings,4 a valuation level not easy to find in global equities today.
- WisdomTree Japan Hedged Financials Fund (DXJF): DXJF tracks the WisdomTree Japan Hedged Financials Index. Japanese Financials5 have been among the worst-performing sectors in Japan year-to-date in 2017, up only about 3.26% during a period where the market6 is up more than 17%.7 Since the September 8, 2017, low in the U.S. 10-Year Treasury of about 2.03%,8 Japan’s Financials have done better—up nearly 12%—but this is still a sector with close to a single-digit price-to-earnings ratio.
- WisdomTree U.S. SmallCap Quality Dividend Growth Fund (DGRS) & WisdomTree U.S. SmallCap Dividend Fund (DES): DGRS tracks the WisdomTree U.S. SmallCap Quality Dividend Growth Index, while DES tracks the total return performance of the WisdomTree U.S. SmallCap Dividend Index. We wrote here about the Russell 2000 Index—specifically, how firms with the lowest return on equity, negative earnings or no dividends actually were tending toward outperformance in U.S. small caps during 2017. While we remain hopeful about the potential for some type of tax announcement from the government, we recognize that after a very strong 2016 (over 30% cumulative returns for both DGRS and DES9), the slow pace of the U.S. government’s process has made U.S. small-cap equity performance tough to come by.
- WisdomTree United Kingdom Hedged Equity Fund (DXPS): DXPS tracks the WisdomTree United Kingdom Hedged Equity Index. This strategy has been hit on two fronts. 1) The British pound has appreciated against the U.S. dollar from $1.23 to $1.33, more than 7%.10 2) Investors are very unsure about what Brexit will mean in the coming years, in many cases preferring to avoid U.K. exposure altogether.
Whether you are looking for opportunities in the marketplace where momentum is running (China tech, emerging markets, India and the European domestic economy) or looking for opportunities where markets have lagged other parts of the world (the Middle East, the United Kingdom, Japanese financials and U.S. small caps), this look at top and bottom performers might give you a year-end shopping list from which to choose.
1Source for all data within CXSE bullet: Bloomberg, with data from 12/31/16 to 11/21/17.
2Sources: WisdomTree, Bloomberg.
3Sources: WisdomTree, Bloomberg, with appreciation of the euro vs. the U.S. dollar measured from 12/31/16 to 11/21/17.
4Sources: WisdomTree, FactSet, with data as of 11/21/17.
5Refers to MSCI Japan Financials Index.
6Refers to MSCI Japan Index.
7Sources: WisdomTree, Bloomberg, with period from 12/31/16 to 11/21/17.
8Sources: WisdomTree, Bloomberg.
9Source: WisdomTree, with period from 12/31/15 to 12/31/16.
10Sources: WisdomTree, Bloomberg, with period from 12/31/16 to 11/21/17.
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. Some Funds focuses their investments in China, the Middle East, Japan, India and the United Kingdom, thereby increasing the impact of events and developments associated with these regions which can adversely affect performance. Investments in emerging or offshore 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 and intervention or political developments. The Fund’s exposure to certain sectors may increase its vulnerability to any single economic or regulatory development related to such sector. As a Fund can have a high concentration in some issuers, the Fund can be adversely impacted by changes affecting those issuers. Funds focusing their investments on certain sectors increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility. Investments in currency involve additional special risks, such as credit risk, interest rate fluctuations and derivative investments, which can be volatile and may be less liquid than other securities, and more sensitive to the effect of varied economic conditions. As a Fund can have a high concentration in some issuers, the Fund can be adversely impacted by changes affecting those issuers. Due to the investment strategy of certain Funds, they may make higher capital gain distributions than other ETFs. Please read the Funds’ prospectuses for specific details regarding the Funds’ risk profile.
Double-digit returns were achieved primarily during favorable market conditions. Investors should not expect that such favorable returns can be consistently achieved. A fund’s performance, especially for very short time periods, should not be the sole factor in making your investment decision.
References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.
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Christopher Gannatti began at WisdomTree as a Research Analyst in December 2010, working directly with Jeremy Schwartz, CFA®, Director of Research. In January of 2014, he was promoted to Associate Director of Research where he was responsible to lead different groups of analysts and strategists within the broader Research team at WisdomTree. In February of 2018, Christopher was promoted to Head of Research, Europe, where he will be based out of WisdomTree’s London office and will be responsible for the full WisdomTree research effort within the European market, as well as supporting the UCITs platform globally. Christopher came to WisdomTree from Lord Abbett, where he worked for four and a half years as a Regional Consultant. He received his MBA in Quantitative Finance, Accounting, and Economics from NYU’s Stern School of Business in 2010, and he received his bachelor’s degree from Colgate University in Economics in 2006. Christopher is a holder of the Chartered Financial Analyst designation.