A CYCLICAL ROTATION TO VALUE
WisdomTree Value Proposition

Why Value Strategies Now?

Growth has been outperforming since before the global financial crisis, though its dominance has been wobbly of late. The chart below shows the rolling 10-year performance of the stock market’s highest price-to-earnings (P/E) quintile of US stocks against the lowest P/E quintile. In the decade to February 2021, the most expensive stocks beat the cheapest by 2.5% a year, a differential akin to what was observed at the apex of the dot-com bubble.


10-Year Annualized Outperformance, High P/E Stocks vs. Low P/E, 7/31/1951 – 1/31/2021

Cumulative Growth Chart

Source: Ken French Data Library, CRSP database, 07/31/1951 – 1/31/2021, with data through 02/26/2021 using WisdomTree's attribution software on the S&P 500 for the final month. Past performance is not indicative of future results.

 

Annualized Performances by Decade

Growth and value come in and out of fashion. In recent decades, high P/E growth stocks have tended to get the better of low P/E value peers. However, cyclical stocks—those most sensitive to economic activity—may begin to outperform as the world emerges from the COVID-19 recession. If so, value stocks may be primed for newfound market leadership, as was the case for most of the last 70 years.

Cumulative Growth Chart

Sources: Ken French Database, CRSP, from 6/30/1951 - 1/31/2021, with WisdomTree database using S&P 500 for February 2021. *1950s commences with beginning of data (6/30/1951).

Our Value Proposition

Our dividend and core Modern Alpha® ETFs naturally tilt toward Value.

While most ETFs weight stocks by market capitalization, WisdomTree believes fundamentals like dividends and earnings offer a more objective measure of company health. Our core and dividend-oriented Modern Alpha® ETFs weight by fundamentals, providing a natural tilt toward value that could be beneficial in a post-COVID-19 cyclical recovery.

 

WisdomTree Domestic Small-Cap Funds

Small-cap stocks are often seen as a bullish, risk-on, pro-cyclical asset class. They benefit from economic growth, rising inflation, widening margins and investor willingness to move out on the risk spectrum. U.S. small caps have dominated every other region in the past two decades — and as the post-COVID-19 economy re-opens and cyclical improvements gain momentum, small caps have again responded with significant gains. 

WisdomTree International Small-Cap Funds

Small-cap stocks are often seen as a bullish, risk-on, pro-cyclical asset class. They benefit from economic growth, rising inflation, widening margins and investor willingness to move out on the risk spectrum. Across the vast majority of global markets, small-cap stocks have posted significant gains versus their large-cap cousins—and their discounted valuations continue to be attractive to investors. WisdomTree suggests considering international small caps for their positive exposure to current cyclical improvements and favorable valuation versus large caps. In this ongoing global upcycle, we see a compelling case for small caps to lead the markets higher.

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