Top and Bottom Performers in Q2 2018

schwartzfinal
Executive Vice President, Global Head of Research
07/05/2018

One of the new interactive dashboards WisdomTree created to help visualize market trends through the lens of our exchange-traded funds (ETFs) showcases top and bottom performers across multiple time periods. The snapshots below highlight a few distinct trends in the second quarter:

 

  • Small caps: the top three best performing WisdomTree funds in the second quarter were all U.S. small-cap funds—across our earnings, dividends, and quality dividend growth methodologies.
  • On the list of top performers were two mid-cap, U.S.-focused funds, both earnings and dividends, which shows how during a rising dollar environment, often one should look to smaller-cap companies over larger caps.

 

 

 

From a currency-hedged perspective, the strong dollar environment can be shown by the fact that the WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) is up over 5%. This trend helped support both international hedged quality, which was up over 4% with the hedge in place, whereas many international funds that did not hedge were down in the second quarter.

 

The segment of the market on the opposite side of this strong dollar phenomenon was really the emerging market currencies. When we go to the bottom performers tab for the second half, all 10 Funds on the list are some derivative of emerging market currency risk or equity risk. Interestingly, a number of emerging market equity strategies actually declined less than just emerging market fixed income during the quarter, showing that equities were more resilient during this emerging market sell-off than fixed income, and a lot of the downside came from the currency moves.

 

 

 

We encourage you to use this dashboard of performance to evaluate the market dynamics and see what strategies are showing either positive momentum or negative momentum to help supplement your screening for new opportunities in your portfolio—whether you want to shop for value and poor momentum or the momentum breakouts.

 

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; these may be enhanced in emerging and/or frontier markets. Funds focusing their investments on certain sectors, regions and/or smaller companies increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility. The RPUT and PTUW Funds will invest in derivatives, including Russell 2000 Index put options (“RUT Puts”) and S&P 500 Index put options (“SPX Puts”), respectively. Derivative investments can be volatile, and these investments may be less liquid than securities, and more sensitive to the effects of varied economic conditions. The value of the RUT Puts and SPX Puts in which the Fund invests is partly based on the volatility used by market participants to price such options (i.e., implied volatility). The options values are partly based on the volatility used by dealers to price such options, so increases in the implied volatility of such options will cause the value of such options to increase, which will result in a corresponding increase in the liabilities of the Fund and a decrease in the Fund’s NAV. Options may be subject to volatile swings in price influenced by changes in the value of the underlying instrument. The potential return to the Fund is limited to the amount of option premiums it receives; however, the Fund can potentially lose up to the entire strike price of each option it sells.

 

Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations. While USDU attempts to limit credit and counterparty exposure, the value of an investment in the Fund may change quickly and without warning in response to issuer or counterparty defaults and changes in the credit ratings of the Fund’s portfolio investments. The Fund’s investment in repurchase agreements may be subject to market and credit risk with respect to the collateral securing the repurchase agreements and may decline prior to the expiration of the repurchase agreement term. As this Fund can have a high concentration in some issuers, the Fund can be adversely impacted by changes affecting such issuers. Unlike typical ETFs, there are no indexes that the Fund attempts to track or replicate. Thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio.

 

Due to the investment strategy of certain Funds, they may make higher capital gain distributions than other ETFs. Please read each Fund’s prospectus for specific details regarding each Fund’s risk profile.

 

Hedging can help returns when a foreign currency depreciates against the U.S. dollar but can hurt when the foreign currency appreciates against the U.S. dollar.

 

About the Contributor
schwartzfinal
Executive Vice President, Global Head of Research
Jeremy Schwartz has served as our Executive Vice President, Global Head of Research since November 2018 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity indexes, quantitative active strategies and multi-asset model portfolios. Mr. Schwartz joined WisdomTree in May 2005 as a Senior Analyst, adding to his responsibilities in February 2007 as Deputy Director of Research and thereafter, from October 2008 to October 2018, as Director of Research. Prior to joining WisdomTree, he was head research assistant for Professor Jeremy Siegel and helped with the research and writing of Stocks for the Long Run and The Future for Investors. Mr. Schwartz also is co-author of the Financial Analysts Journal paper, What Happened to the Original Stocks in the S&P 500? He received his B.S. in Economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Mr. Schwartz is also a member of the CFA Society of Philadelphia.