Our New Growth Leaders Strategy—Reintroducing the Platform Business Model

WisdomTree is relentlessly focused on creating better ways to invest, and that includes continuously reevaluating and improving the positioning of our existing strategies.

We recently announced enhancements to our new WisdomTree Growth Leaders ETF (PLAT) that we believe position the Fund for both future potential outperformance within the important growth category but also, critically, reduced tracking error to the major growth benchmarks.

PLAT continues to provide exposure to high-growth companies that operate platform-based business models. But the index PLAT is designed to track, the WisdomTree Growth Leaders Index¹, has migrated from an equal-weighted and global strategy to one that incorporates market capitalization and a greater focus on the U.S.—to have less deviation relative to traditional U.S. large-cap growth benchmarks.

More common holdings at the top of PLAT does not mean it is purely a strategy that tracks a growth benchmark.

The new WisdomTree Growth Leaders Fund has companies with historical three-year sales growth rates that are more than double those of companies in the traditional S&P 500 and Russell 1000 Growth indexes, besides sharing four of the same top five holdings.²

The key to PLAT’s elevated growth rates partly comes from being more focused on, and selective about, companies with the strongest growth rates. What PLAT’s constituents have in common is that they are platform-based businesses.

Summary of Methodology Enhancements

Why Platform Businesses Are the Growth Leaders

Platform businesses aim to create value by connecting interdependent groups (e.g., Uber connects a rider with a driver), while traditional businesses create value through linear production or supply (e.g., Ford or Hertz produce/buy cars for sale/rent).⁴

We believe the competitive advantage of platform businesses lies in their ability to scale quickly and efficiently beyond the capability of linear businesses. This scale advantage stems from two major sources:

• Platforms Benefit from Network Effects: The value of a platform’s network increases for existing users as the network grows and new users are added (e.g., additional riders increase the value of Uber’s network for drivers, and vice versa).

• Platforms Benefit from Near-Zero Marginal Costs: There is little to no cost to add a user to the network or to facilitate a marginal transaction between users (e.g., after the expense of developing the Uber app, there is nearly zero cost per download or ride booking). In contrast, a linear business will reach a size where the marginal cost of additional production/supply outweighs the benefit.

WisdomTree licenses data from Applico, a platform consulting business, to help identify companies with these distinct platform characteristics.

We also added revenue growth requirements to emphasize exposure to growth leaders and platforms that are continuing to scale.

The result of the enhancements to PLAT’s methodology is a 51-stock basket with leading growth, margin and capital efficiency metrics:

• PLAT boasts revenue growth two to three times that of the S&P 500 and NASDAQ 100 indexes, and the 30% sales growth figure is competitive with the top decile of companies in the S&P 500 with fastest growth.

PLAT Generated Revenue Growth Above the Top Decile of the S&P 500 Index

• The structural advantages of platforms are exemplified by PLAT’s higher gross margins and lower asset intensity.

For definitions of terms in the table, please visit our glossary.

• Platforms have disrupted many sectors of the global economy—PLAT provides diverse sector exposure across real estate, payments, modern media, content production and transportation.

By targeting companies operating large, scalable networks that disrupt the competitive landscape, PLAT offers investors a differentiated way to access growth.

We have high conviction in the potential for platform businesses to outperform and to gain market share at the expense of traditional, linear businesses—while doing so with better economies of scale and potential for long-term profitability.

A list of the types of platforms that PLAT includes and representative companies of each type of platform model is below. For more information on PLAT, visit the Fund details page: WisdomTree Growth Leaders Fund.

¹The WisdomTree Growth Leaders Fund seeks to track the price and yield performance, before fees and expenses, of the WisdomTree Growth Leaders Index.
²Sources: WisdomTree, FactSet, S&P Global, FTSE Russell, as of 7/17/20 (PLAT screening date).
³Basis point: 1/100th of 1 percent.
⁴As of 7/17/20 (PLAT screening date), PLAT held 1.2% of its weight in Uber. PLAT did not hold Hertz or Ford.