WisdomTree’s U.S. Growth & Momentum Fund (WGRO) recently completed its sixth rebalance since launching in June 2021.

The Fund is currently WisdomTree’s second top-performing strategy quarter-to-date (+12.7%) and the fifth top-performing strategy since its launch date (+12.9%).¹ Notably, the Fund has outperformed the S&P 500 Index by 1.87% and modestly outperformed the Russell 1000 Growth Index by 0.16% since inception.²

Performance is historical and does not guarantee future results. Current performance may be lower or higher than quoted. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Standardized performance data for the most recent quarter and month-end are available here.

For background, WGRO seeks to capture the upside of an aggressive growth portfolio, with lower drawdowns and volatility that often accompanies growth investing.

WGRO seeks to track the price and yield performance, before fees and expenses, of the O’Neil Growth Index, which was developed by tenured growth investment manager O’Neil Global Advisors.

The strategy uses a combination of four proprietary O’Neil factors that seek to time entry points into securities during small pullbacks and to avoid holding stocks that are overextended. Those four factors are:

• Pullback – a technical factor that measures a stock’s long-term momentum and short-term mean reversion characteristics, targeting stable growth stocks with positive recent price action
• Volatility – aims to lower the long-term volatility of the portfolio
• Datagraph Rating™ – a composite growth characteristic to target companies exhibiting market leadership and solid fundamentals
• Hotness – a measure of a stock’s recent change in volume compared with historical averages, which seeks to lower the volatility of the portfolio and to avoid stocks with high short-term speculative interest

Different from the many momentum ETF competitors that rebalance semiannually or quarterly, WGRO rebalances monthly to adapt to changing market signals.

Sector Exposure

Over the past six rebalance cycles, WGRO has had notable shifts in sector allocations:

• Since inception, WGRO has maintained an over-weight allocation to the Consumer Discretionary sector relative to the S&P 500 and Russell 1000 Growth Indexes. WGRO has incrementally trimmed its exposure at each rebalance from 33% at inception to 17% in November. Over this same period, Consumer Discretionary was the second and fourth best-performing sector within the S&P 500 Growth and Russell 1000 Growth Indexes, respectively.³
• WGRO significantly added to its Health Care exposure at the October rebalance during a well-timed slump in Health Care stocks, as measured by the S&P 500 Health Care Index. The Fund added 10 new Health Care names that ranked highly on the Pullback factor.

S&P 500 Health Care Index

• WGRO has also made a net addition of 7% to its Financials exposure since inception. At the most recent rebalance, WGRO added four new Financials stocks that ranked highly on both the Pullback and Datagraph factors. Over this same period, Financials stocks within the S&P 500 Index have been the third top-performing sector group (+11.5%).⁴

Attractive Valuation and Fundamentals

Quarter-to-date, WGRO has managed to outperform both the S&P 500 and Russell 1000 Growth Indexes while maintaining fundamental growth rates and a discounted valuation.

WGRO has consistently generated revenue growth ~4% above the Russell 1000 Growth Index and 10% above the S&P 500 Index.

Importantly, the strong revenue growth generated by WGRO is also observed in bottom line earnings growth, which speaks to the operational efficiency of the companies captured in the basket. There is a significant gap between the earnings growth generated by WGRO and the benchmark Indexes. On average, earnings growth for WGRO is ~40 percentage points higher than those companies included in the S&P 500 or Russell 1000 Growth Indexes.

WGRO is currently attractively valued at 19.2x forward price-to-earnings (P/E) relative to 22.5x and 33.8x for the S&P 500 and Russell 1000 Growth Indexes, respectively. This valuation discount is consistent with the historical median discount relative to these benchmarks—WGRO has been valued roughly 5 and 15 forward P/E turns below the S&P 500 and Russell 1000 Growth Indexes, respectively.⁵

Valuation

The fundamental and valuation differentials are driven in large part by the composition of WGRO—its top holdings are less concentrated and quite different from what is typically captured by large-cap U.S. growth benchmarks.

Positioning WGRO

Given the strategy’s higher fundamental growth and lower valuation, WGRO may be of interest to investors that want to allocate to mid- and large-capitalization U.S. growth stocks at discounted multiples. The Fund’s monthly rebalance schedule also may make it attractive to investors seeking to allocate to a momentum strategy that responds more frequently to changes in the market environment.

¹Source: WisdomTree. Performance at NAV for the periods 9/30/21–11/22/21 and 6/23/21–11/22/21.
²Sources: WisdomTree, Bloomberg, for the period 6/23/21–11/9/21. WGRO performance at NAV.
³Sources: WisdomTree, Bloomberg, for the period 6/24/21–11/9/21. Consumer Discretionary stocks within the S&P 500 and Russell 1000 Growth Indexes returned 14.3% and 14.75%, respectively.
⁴Sources: WisdomTree, Bloomberg, for the period 6/23/21–11/9/21.
⁵Sources: WisdomTree, FactSet, for the period 6/23/21–11/9/21.