Did You Buy Equities in March 2009?

Global Head of Research

On March 9, 2009, the S&P 500 Index closed at 676. On March 16, 2016—even after the turbulence thus far in 2016—the S&P 500 Index closed at 2,027. That is price appreciation of 200% in cumulative terms, or, in other words, almost 17% per year.1 While at the time back in March 2009 there were discussions about the U.S. government potentially nationalizing certain banks, we now know that, with 20/20 hindsight, it was a great time to make an allocation to U.S. equities. Many of us are kicking ourselves for not actually having had the fortitude to make an allocation to U.S. equities at that time, and we wish for another similar opportunity. Finding Global Equities Priced Like It’s March 2009 In 2009, the world was in the midst of the global financial crisis, so if we’re honest, buying equities was not at the forefront of many of investors’ minds. There were some very real risks threatening the health of the global financial system. But it was precisely those risks that caused the opportunity! We believe that we’ve found a universe of global equities priced at a similar level to where they were in 2009: the WisdomTree Emerging Markets High Dividend Fund (DEM). (Click for standardized performance of DEM.) DEM Market Price Is Not Far above March 2009 Levels DEM Market Price March 2, 2009 The continued existence of the global financial system was at risk. Developed markets, including the United States and Europe, were the initial epicenters of the crisis. Looking at DEM at that point, we saw:2
• A price-to-earnings (P/E) ratio of approximately 7.0x, which is one of the lowest points we’ve seen in the history of this portfolio. • Taiwan was the largest single country exposure at approximately 33%, followed by South Africa and Malaysia in the 10% to 11% range. It is notable that exposure to the BRICs broke down as follows: Brazil, about 8.0%; Russia, about 1.6%; India, less than 1.0%; and China, less than 2.0%. • On the sector side, Telecommunication Services was the largest single sector exposure at slightly more than 21%, followed by Financials, which was slightly more than 20%. The weight in the Energy sector was about 9%, and it is worth noting that the price of a barrel of oil was slightly above $40. • If we look at the one-year period prior to March 2, 2009, we see that the market price of DEM dropped more than 50%. It is worth noting, however, that the price level of the MSCI Emerging Markets Index was down nearly 60% over the same period.
March 16, 2016 The U.S. and European economies are at various stages on a path to recovery. Central banks have provided vast amounts of liquidity, and the continued viability of the financial system as we know it is not at risk. If there are concerns, they predominantly center upon Energy and commodities, which have been trending downward for some time, threatening emerging market economies that depend on exporting raw materials. We saw:3
• A P/E ratio of just 10.5x, which is very low compared to other global equity markets. • Taiwan was the largest single country exposure, at approximately 24%. What we find the most interesting about the country exposure is how there have been massive shifts in terms of the overall exposure to the BRICs: Brazil, 8.3%; Russia, 13.1%; India, less than 1%; and China, just about 21%. This indicates that the highest-yielding stocks in emerging markets were located in starkly different countries in 2016 than they were in 2009. • On the sector side, Financials was the biggest exposure at 24.2%, followed by Energy at 16.2% and Materials at 14.5%. It is worth noting that the price of a barrel of Brent crude oil was just over $40. • If we look at the one-year period prior to March 16, 2016, we see that the market price of DEM dropped about 17%; the price level of the MSCI Emerging Markets Index was down a similar amount.
  DEM Continues to Hunt for Valuation Opportunities DEM is designed to track the performance of the WisdomTree Emerging Markets High Dividend Index before fees. The Index searches for valuation opportunities each year, using high dividend yields as the barometer. At a price approaching March 2009 levels, the critical question to ask is whether the risks in emerging markets today—which we agree are significant—are appropriately priced. If so, with an appropriately long time horizon, we believe in this asset class going forward.       1Source: Bloomberg. 2Sources for bullets: WisdomTree, Bloomberg. Exposures and valuation measured as of 3/2/09; returns measured from 3/2/08 to 3/2/09. 3Sources for bullets: WisdomTree, Bloomberg. Exposures and valuation measured as of 3/16/16; returns measured from 3/16/15 to 3/16/16.

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. Funds focusing on a single sector 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 and intervention or political developments. Due to the investment strategy of this Fund, it may make higher capital gain distributions than other ETFs. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.

Dividends are not guaranteed, and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.

For more investing insights, check out our Economic & Market Outlook


About the Contributor
Global Head of Research

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 was based out of WisdomTree’s London office and was responsible for the full WisdomTree research effort within the European market, as well as supporting the UCITs platform globally. In November 2021, Christopher was promoted to Global Head of Research, now responsible for numerous communications on investment strategy globally, particularly in the thematic equity space. 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.