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By Jeremy Schwartz, CFA®, Director of Research, Christopher Gannatti, CFA®, Associated Director of Research & Eswarie Subrahmanyam S. Balan, Research Analyst

We recently wrote a paper detailing the factor exposures inherent to "smart beta" strategies in U.S. equity markets. And we felt that following up our U.S. focus with an internationally focused look at smart beta strategies could provide additional insights.

Some have called smart beta just "small-cap tilted." Some have called smart beta just repackaged value strategies, and others have even referred to it as making an active bet on the market. We utilized regression analysis to help explain factor loadings of various indexing strategies to quantify how big a "bet" these strategies are making on various factors, which can help explain their return patterns.

One complication with regard to international factor analysis: The country exposures comprising common factors that are used to run the regressions can impact the loading to various factors, so the international models are harder to interpret than the U.S. models. To help with this issue, we examined a number of blended strategies that more closely approximate the universe of country exposures inherent to the available factors.

Smart Beta Strategies Under Analysis

WisdomTree has one of the broadest sets of Indexes focused on international equities that are not weighted by market capitalization. In essence, we are looking to illustrate how these Indexes with at least five years of performance history were exposed to various factors. Broadly speaking, the categories of our analysis included:

  • Developed International Equities: WisdomTree has a family of dividend-weighted international Indexes focused on developed international markets, with performance benchmarks represented by the appropriate market capitalization size exposures of the MSCI EAFE Index. In this analysis, we also include the MSCI EAFE IMI (Investable Market Index), as it has recently garnered attention for its ability to generate exposure to large-cap, mid-cap and small-cap stocks.
  • European Equities: WisdomTree has a dividend-weighted small-cap Index focused on the European region, which we compare against different MSCI Europe indexes in order to indicate how its size and value factor loadings have behaved over time.
  • Japanese Equities: WisdomTree has a dividend-weighted small-cap Index focused on Japanese equities, which we compare against different MSCI Japan indexes in order to indicate how its size and value factor loadings have behaved over time.

Illuminating The Factors

Professors Eugene Fama and Kenneth French have developed a factor-based approach to analyzing the performance of a particular investment strategy or index. In essence, there are four factors, each meant to have some degree of explanatory power over returns. It's important to note that this analysis is wholly dependent upon the period of study:

  • Market: This factor is meant to denote exposure to the market's "risk premium"-a figure that is calculated by looking at the equity market's return minus the risk-free rate9. Higher values here indicate an increased sensitivity to potentially amplify the impact of market movements.
  • Size: This factor is meant to denote exposure to different market capitalization size segments. More negative values indicate exposure to the larger capitalization size segments, whereas more positive values indicate exposure to smaller capitalization size segments.
  • Value: One of the most widely referenced strategy style distinctions is the differentiation between "value" or "growth" exposure, as each can have a very unique risk/return profile. In these results, a more positive figure indicates a greater sensitivity to the value style, whereas a more negative figure indicates a greater sensitivity to the growth style.
  • Momentum: One factor that has received attention more recently is momentum, which measures the propensity of an investment strategy to capture different trends exhibited by the market. A more negative value here indicates essentially a lack of momentum, whereas a more positive value indicates a greater potential sensitivity to this factor.

In theory, each one of these factors has the potential to become more or less favored over time, so if smart beta approaches give more weight to some and less weight to others, this could be of particular interest as people look to set up exposures congruent with their broader economic thinking.

Important Notes About The Data

There are some crucial elements to discuss with respect to the factor data series available for this analysis.

Issue 1: Based on the available factors on Professor French's website, which we have relied on for common factor data, there was no pure developed international universe. The closest universe is a global factor set, encompassing a developed international universe of countries plus the U.S. and Canada. The most similar market capitalization-weighted universe of stocks would be represented by the MSCI World Index, a global index that excludes emerging markets. To better match up with this data, we created a section highlighting blends of the developed world with the U.S. to mirror the global factor work-this provides a better overview than a stand-alone analysis of developed world indexes. On the other hand, there are in fact purely European and purely Japanese factors.

Issue 2: At times, "value" is in the eye of the beholder or, more precisely, in the system of measurement utilized to come to its determination. WisdomTree's equity income strategies utilize the dividend yield measure-the higher the dividend yield, the greater the level of dividends per dollar of share price. The Fama and French factors utilize the ratio of book value to market value, with a higher value indicative of more book value per unit of market value. Both approaches lead to subsets of "value" stocks, but if there were a market that would tend to exhibit low dividend yields but high ratios of book value to market value, there would be the potential for some divergence-meaning that what could look like "value" to Fama and French might not look like value to WisdomTree. Japanese equities could provide just such an example, especially in the recent past that we are able to measure.

Developed International Equities

  • Market Factors All Above 1: In our U.S. paper on this topic, we saw that dividend-weighted strategies tended to bring the market factor below 1. In this paper, both dividend-focused and market capitalization-weighted strategies are above 1 by that measure. One potential reason for this is the fact that the factors are being calculated on a global basis, which includes U.S. equities. U.S. equities would represent a component of the underlying factor returns, which would have no sensitivity to the risk of fluctuating exchange rates. This in turn could make the developed international Indexes shown look like they have higher volatility because each would be 100% exposed to the risk of fluctuating exchange rates over the entire period.
  • Measurement Bias in the "Value" Factor: The WisdomTree DEFA Equity Income approach-one that seeks the highest 30% of stocks by dividend yield for initial inclusion-is focused on value stocks by virtue of its methodology. However, a value loading factor of .058 hardly indicates a particularly strong value focus. We believe this warrants further examination, with specific focus given to the issue of U.S. exposure in the underlying factors but not in the WisdomTree DEFA Equity Income Index, as well as the issue of Japan, a country with perennially low dividend yields but high book to market values.
  • Small-Cap Outperformance: Whether one looks across the WisdomTree or MSCI index options, the small-capitalization size segment tended to outperform both the mid-cap and large-cap size segments. This may shed some initial light on the reason the MSCI EAFE IMI outperformed the MSCI EAFE Index over this period-something we will explore in greater detail below.

European Equities

  • Small Caps Over Large Caps: One of the more significant trends we have been discussing has been the tendency in Europe for small caps to generate very different performance characteristics than large caps. We see that trend of small-cap outperformance captured over this particular period of analysis.
  • The European factor models show very high R-squared values, which means they have a high degree of return explanation. The characteristics of the WisdomTree Europe SmallCap Dividend Index show a very high loading to small caps, as would be expected, but also shows an anti-momentum loading factor (with negative momentum factor) that's very similar in anti- momentum as other value strategies.

Japanese Equities

  • Lackluster Return Picture on Initial Look: The most noticeable element of the Japanese equity index picture are the much lower returns compared to both the developed international and European indexes. The WisdomTree Japan SmallCap Dividend Index has a big loading to small caps, as would be expected, but also a loading to value that is not quite as high as the MSCI Japan Small Cap Value Index. The WT Japan SmallCap Dividend Index shows a neutral loading to momentum here.

Using Blends To Better Align With Country Exposures Of Available Factors

Granted, looking at the developed international section of figure 1 may not paint the clearest picture. The crucial issue is that U.S. equities comprised a major portion of the factor exposures but no exposure to the indexes shown in the developed international section of figure 1. Each index or blend shown in figures 2A and 2B has approximately 50% exposure to U.S. equities, which we believe is a better representation of the exposures in the available factors we are using.

Broad Market Cap World Blend: This would be 50% S&P 500 Index and 50% MSCI EAFE Index and is meant as a more representative baseline market capitalization-weighted exposure for the equity universe defined by the global factors, which includes significant U.S. exposure. Note the Model R-squared here is .997, which shows that the factors have an extremely high explanation of the return behavior of this blend. This blend ultimately has a very similar R-squared as the MSCI World Index and fairly similar returns and factor loadings over the period to this market capitalization-weighted index of developed world equities.

WT Broad Equity Blend: This would be 50% WT Dividend Index and 50% WT DEFA Index and is one measure of how a broad dividend-weighted allocation looks on a basis comparable to the MSCI World. This blend produced an average annual return that was approximately 75 basis points better than the MSCI World, with a higher loading to the value segment. We find this interesting in that the MSCI World Value lagged the MSCI World Growth by over 200 basis points per year over the period, and yet the WT Broad Equity Blend delivered an average annual return much closer to that of the MSCI World Growth. This is one critical point that shows that despite being biased toward value strategies, dividend-weighted indexes involve more than just a value bias in their long-run performance.

  • The WT Broad Equity Blend shows a market beta of .925 (which is expected), a large-cap bias compared to the Broad Market Cap World Blend, more of a value tilt than the Broad Market Cap World Blend and a slight anti-momentum bias. These are much more intuitive results than what we saw trying to run the WT DEFA Index alone against the factors, and this is further validated by a higher R-squared, shown at .978. This blend again illustrates that dividend weighting, counter to conventional thinking, is not just a small-cap-biased strategy.

WT Value Equity Blend: This would be 50% WT Equity Income Index and 50% WT DEFA Equity Income. The WT Equity Income Index represents the parallel strategy to the WT DEFA Equity Income approach in the U.S. We do, in fact, see the lowest R-squared here, because the two WisdomTree Indexes used for the blend are the most selective relative to broad, market capitalization- weighted exposures represented in the factors. The value loading of this blend shows a higher value tilt than even the MSCI World Value Index, which is consistent with the work we did in the U.S. factor research.

WT SmallCap Equity Blend: This would be 50% WT SmallCap Dividend Index and 50% WT International SmallCap Dividend Index. The WisdomTree small-cap blend has a comparable size/small-cap loading as the MSCI World Small Cap Value but a stronger value tilt in its construction, which is more of a function of the U.S. small-cap exposure than the developed international exposure.

Presence of Potential Anti-Momentum: For each respective WT Equity Blend, the momentum factor loading became more negative. We believe this makes sense because the basis of WT's dividend-focused strategies around the world is to reduce weight to securities that may have run up in price faster than in dividend growth, and to increase weight to securities that may not have seen the strongest price performance but exhibited dividend growth.

Reduction of Market Factor Loading: We saw in our U.S. piece that the dividend-focused strategies tended to reduce the market factor loading below 1. The WT Equity Blends shown here also exhibited this tendency-much more in line with what we'd expect when looking at dividend-focused strategies. We believe that a big reason for this is that we're now much more closely matching up with the U.S. exposure, thereby eliminating a mismatched source of potential volatility coming from exchange rate fluctuations.

To conclude, this is an important section in looking to better interpret the results of what we were seeing in the developed international section of figure 1. Given that the current set of available factors comprises a developed world universe (including U.S. and Canada) as opposed to a developed international universe (excluding U.S. and Canada) we feel that it paints the clearest possible picture of the results.

Europe & Japan: Looking At The Size Factor

After this broader look we now zoom in on Europe and Japan. We'll start with looking at the size factor loadings for each market.

The WT Europe SmallCap Dividend Index was actually the smallest strategy, when compared to the MSCI Europe Small Cap, Small Cap Value and Small Cap Growth indexes. However, what's interesting is the close spread: .78 for the largest (MSCI Europe Small Cap Value) to .89 for the smallest (WT Europe SmallCap Dividend), which is very different from the greater than .20 spread between the small-cap strategies in the developed international strategies.

What we see here is the more expected arrangement by size factor loading, with the WisdomTree Japan SmallCap Dividend Index exhibiting a larger size factor loading than the MSCI Japan Small Cap indexes. Still, the spread from largest to smallest is quite small-much more similar to what we saw in the European strategies than in the developed international strategies.

Europe & Japan: Looking At The Value Factor

The other key factor loadings we wanted to look at for Europe and Japan concern value. The picture presented by the European equity value factor loadings was one of the more symmetrical we've seen, in that the MSCI Europe Small Cap Growth and MSCI Europe Growth indexes were basically equal on this measure, as were the MSCI Europe Small Cap Value and MSCI Europe Value indexes. European small caps, as seen by the MSCI Europe Small Cap Index, seemed to have a slight tilt toward value, whereas European large caps, as seen by the MSCI Europe Index, seemed to have a slight tilt toward growth.

Value, but Not Deep Value: Figure 4A shows that the WisdomTree Europe SmallCap Dividend Index does, in fact, have a value factor loading, but it is certainly not on the extreme end of the spectrum. We'd attribute this to the fact that many European small-cap equities do pay dividends, so we wouldn't expect to see any extreme value tilt coming from our stock selection, but we would expect that a certain tilt does in fact come from our cash dividend weighting.

In contrast to what we saw in the European equity indexes in figure 4A, the Japanese equity indexes in figure 4B definitely indicate an overall value tilt. This makes sense in that Japanese companies tend to exhibit generally lower price-to-book value ratios18 due to the fact that they tend to hold large amounts of cash.

Price-to-Book Value Ratios Are at It Again: The WT Japan SmallCap Dividend Index, in our opinion, would have less of a tilt toward value in terms of its stock selection-similar to what we saw in Europe because like what we saw in Europe, many Japanese small-cap companies do pay dividends. Our cash dividend weighting, on the other hand, may have the tendency to bring a greater increase to the degree of loading to the value factor. The MSCI Japan Small Cap Value Index does, in fact, focus on price-to-book value ratios in terms of its stock selection, so it is not surprising that this is more congruent with the focus of the Japanese equity factors, thereby showing a greater loading to value in this case.

Discussing The Developed International Markets

As we've discussed previously, the application of the factors to the developed international indexes-specifically those that exclude the U.S.-is imperfect. That being said, since this same issue exists for every index in the mix, there still may be insights to be gained from looking at the factor loadings. Broadly speaking, we were less concerned with the size factor loadings but felt that the interpretation of the value factor loadings was problematic, which is why we don't have a specific section highlighting it within this piece (although the information is in Figure 1).

Largest Size Factor Loadings: As discussed in our U.S. paper, dividend-focused strategies (specifically the WT International LargeCap Dividend Index, the WT DEFA Equity Income Index and the WT DEFA Index) exhibited the most negative size factor loadings, indicating their sensitivity to the largest stocks among the strategies shown.

MSCI EAFE IMI: The crux of this index is that the standard MSCI EAFE Index does not have any significant exposure to mid- cap or small-cap stocks. The MSCI EAFE Index showed a size factor loading of -.04, whereas the MSCI EAFE IMI exhibited a value of .06-significantly more exposure to mid- and small-cap stocks.

Mid- and Small Caps: Another point that is similar to what we saw in the U.S. analysis is that the dividend strategy size cuts- both the mid-cap and small cap-are skewed a little larger but generally in the ballpark of the cap-weighted size tilts.

Taking Action: Developing Investment Themes Based On Factor Exposures

While our previous discussion of factor loadings is certainly important, arguably more important is the ultimate application. How might looking at these factor loadings ultimately help drive different decisions?

TAKE 1: Examining The MSCI EAFE IMI Size Exposure

One of the more interesting recent developments, at least in terms of analyzing index exposure, is the attention that MSCI's "Investable Market Indexes" have been receiving of late. Here, we focus on the MSCI EAFE IMI. The primary default approach prior to this point was to characterize the MSCI EAFE Index as "the market" and think of its return as the return of developed international equities.

However, one issue with the MSCI EAFE Index is that it tends to include very few mid-caps and pretty much no small caps- capitalization segments that we certainly deem important. The MSCI EAFE IMI does include these size segments and therefore could be argued to be representative of a wider spectrum of the market.

Dividends Beat Market Capitalization: We thought it interesting, for this particular period, to pit a WisdomTree dividend mix of large caps, mid-caps and small caps against a market capitalization-weighted mix of the same size segments. The catch was that both had to match the size factor exposure of the MSCI EAFE IMI. The WT mixed strategy won-by almost 1.3% per year.

Take 2: Examining The MSCI EAFE Index Size Exposure

The MSCI EAFE Index is one of the most widely followed measures of the performance of developed international equity markets. This factor analysis, in essence, allows us, without cheating by dipping too far into small caps, to pit ourselves against the MSCI EAFE Index. The only criterion was that each of our blends must match the size factor of the MSCI EAFE Index, and since both our WT International LargeCap Dividend and WT DEFA Indexes have such larger size factor loadings than the MSCI EAFE, we were able to mix in differing amounts of our mid-cap and small-cap Indexes while still not cheating with an over-weight to the small-size factor loading.

WT Wins Over This Period: Each of the WT blends that, as can be seen, match the size factor loading of the MSCI EAFE Index, beats the MSCI EAFE Index in terms of average annual returns by more than 1.00% per year. This is noteworthy in that these strategies aren't using "smart beta" methodologies to overload to small caps-they generate their higher returns by other means.

Conclusion: What Did We Learn About Our International Indexes?

At WisdomTree, when we think of "smart beta," we think of a wide array of indexes that have been added to the equity investor's toolbox over recent years. We wrote our U.S. piece as well as this piece with one thought in mind: to help people better understand the factors that have driven our returns over our nearly eight year performance history. Where we surprised by the results?

Not really. When we think of the methodologies that have driven our Indexes since 2006, the common element has been an ongoing annual rebalance. This rebalance instills discipline to trim weight from stocks that have seen their share prices outpace their fundamentals and add weight to stocks that have seen their fundamentals outpace their share prices. Within the factor work, this comes up as our negative factor loading to momentum, which was visible both in this piece and the prior U.S. version. While it's interesting to note the different factor loadings-especially where we can say our equity income Indexes are clearly not small-cap tilted-we would continue to believe that the most critical element to the WisdomTree approach remains the annual rebalance's restoring sensitivity to relative valuation, and that's a story we've been telling now for almost eight years. We showed that despite being biased toward value, dividend-weighted indexes involve more than just a value bias in their long-run performance.

Unless otherwise stated, data source is WisdomTree.

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.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Funds before investing. To obtain a prospectus containing this and other important information visit wisdomtree.com. Read the prospectus carefully before you invest.

Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Investments focused in Japan are increasing the impact of events and developments associated with the region, which can adversely affect performance. Investments focused in Europe are increasing the impact of events and developments associated with the region, which can adversely affect performance.

WisdomTree Japan SmallCap Dividend Index: Designed to provide exposure to dividend-paying small-capitalization companies in Japan. MSCI Japan Index: A free float adjusted market cap-weighted subset of the MSCI EAFE Index that measures the performance of the Japanese equity market. MSCI Japan Value Index: A free float adjusted market cap- weighted index measuring the performance of Japanese equities with higher book value-to-market value ratios. MSCI Japan Growth Index: A free float adjusted market cap- weighted index measuring the performance of Japanese equities with higher earnings growth characteristics. MSCI Japan Small Cap Index: A free float-adjusted market capitalization-weighted index designed to measure the equity market performance of Japanese small-cap securities. MSCI Japan Small Cap Value Index: A free float-adjusted market capitalization-weighted index designed to measure the equity market performance of Japanese small-cap securities with higher book value-to-market value ratios. MSCI Japan Small Cap Growth Index: A free float-adjusted market capitalization-weighted index designed to measure the equity market performance of Japanese small-cap securities with higher earnings growth characteristics. WisdomTree Europe SmallCap Dividend Index: A fundamentally weighted index meant to measure the performance of dividend- paying European small-cap equities; weighted by cash dividends. MSCI Europe Index: A free float-adjusted market capitalization-weighted index designed to measure the performance of developed equity markets in Europe. MSCI Europe Value Index: A free float-adjusted market capitalization-weighted index designed to measure the performance of developed equity markets in Europe with higher book value-to-market value ratios. MSCI Europe Growth Index: A free float-adjusted market capitalization-weighted index designed to measure the performance of developed equity markets in Europe with higher earnings growth characteristics. MSCI Europe Small Cap Index: A free float-adjusted market capitalization-weighted index designed to measure the performance of developed equity markets in Europe, specifically focusing on the small-cap segment of these equity markets. MSCI Europe Small Cap Value Index: A free float-adjusted market capitalization-weighted index designed to measure the performance of developed equity markets in Europe, specifically focusing on the small-cap segment of these equity markets with higher book value-to-market value ratios. MSCI Europe Small Cap Growth Index: A free float-adjusted market capitalization-weighted index designed to measure the performance of developed equity markets in Europe, specifically focusing on the small-cap segment of these equity markets with higher earnings growth characteristics. WisdomTree DEFA Index: A fundamentally weighted index that measures the performance of dividend-paying companies in the industrialized world, excluding Canada and the United States, that pay regular cash dividends and meet other liquidity and capitalization requirements. It comprises companies incorporated in 16 developed European countries, Japan, Australia, New Zealand, Hong Kong and Singapore. Companies are weighted based on annual cash dividends paid. WisdomTree DEFA Equity Income Index: A fundamentally weighted index that measures the performance of dividend-paying companies in the industrialized world, excluding Canada and the United States, that pay regular cash dividends and are among the 30% highest-yielding equities within the WisdomTree DEFA Index as of the annual Index screening date. WisdomTree International LargeCap Dividend Index: A fundamentally weighted index that measures the performance of the large-capitalization segment of the dividend-paying market in the industrialized world outside the U.S. and Canada. The Index comprises the 300 largest companies ranked by market capitalization from the WisdomTree DEFA Index. Companies are weighted in the Index based on annual cash dividends paid. WisdomTree International MidCap Dividend Index: A fundamentally weighted index that measures the performance of the mid-capitalization segment of the dividend-paying market in the industrialized world outside the U.S. and Canada. The Index comprises the companies that make up the top 75% of the market capitalization of the WisdomTree DEFA Index after the 300 largest companies have been removed. Companies are weighted in the Index based on annual cash dividends paid. WisdomTree International SmallCap Dividend Index: A fundamentally weighted index that measures the performance of the small-capitalization segment of the dividend-paying market in the industrialized world outside the U.S. and Canada. The Index comprises the companies that make up the bottom 25% of the market capitalization of the WisdomTree DEFA Index after the 300 largest companies have been removed. Companies are weighted in the Index based on annual cash dividends paid. MSCI EAFE Index: A free float adjusted market cap-weighted index composed of companies representative of the developed market structure o developed countries in Europe, Australasia and Japan. MSCI EAFE IMI: A free float adjusted market cap-weighted index composed of companies representative of the developed market structure of developed countries in Europe, Australasia and Japan, covering the large-cap, mid-cap and small-cap segments of the capitalization spectrum. MSCI EAFE Mid Cap Index: A free float-adjusted market capitalization-weighted equity index that captures mid-cap representation across developed market countries around the world, excluding the U.S. and Canada. MSCI EAFE Mid Cap Value Index: A free float-adjusted market capitalization-weighted equity index that captures mid-cap representation across developed markets around the world, excluding the U.S. and Canada, focusing on those with higher book value-to-market value ratios. MSCI EAFE Mid Cap Growth Index: A free float-adjusted market capitalization-weighted equity index that captures mid-cap representation across developed markets around the world, excluding the U.S. and Canada, focusing on those with higher earnings growth characteristics. MSCI EAFE Value Index: A free float adjusted market capitalization-weighted subset of stocks within the MSCI EAFE Index that have lower share prices relative to their earnings or dividends per share. MSCI EAFE Growth Index: A free float adjusted market capitalization-weighted subset of stocks within the MSCI EAFE Index that have higher share prices relative to their earnings or dividends per share. MSCI EAFE Small Cap Index: A free float-adjusted market capitalization-weighted equity index that captures small-cap representation across developed market countries around the world, excluding the U.S. and Canada. MSCI EAFE Small Cap Value Index: A free float-adjusted market capitalization-weighted equity index that captures small-cap representation across developed market countries around the world, excluding the U.S. and Canada, focusing on those with higher book value-to-market value ratios. MSCI EAFE Small Cap Growth Index: A free float-adjusted market capitalization-weighted equity index that captures small-cap representation across developed market countries around the world, excluding the U.S. and Canada, focusing on those with higher earnings growth characteristics. S&P 500 Index: A market capitalization-weighted benchmark of 500 stocks selected by the Standard & Poor's Index Committee, designed to represent the performance of the leading industries in the United States economy. Russell 2000 Index: Measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000 Index, representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. MSCI World Index: A broad, developed world equity index inclusive of the U.S. and Canada, weighted by free float-adjusted market capitalization. MSCI World Value Index: A broad, developed world equity index inclusive of the U.S. and Canada, weighted by free float-adjusted market capitalization and focused on companies with higher book value-to-market value ratios. MSCI World Growth Index: A broad, developed world equity index inclusive of the U.S. and Canada, weighted by free float-adjusted market capitalization and focused on companies with higher earnings growth characteristics. MSCI World Small Cap Index: A developed world equity index inclusive of the U.S. and Canada, weighted by free float-adjusted market capitalization and specifically focused on small-cap companies. MSCI World Small Cap Value Index: A developed world equity index inclusive of the U.S. and Canada, weighted by free float-adjusted market capitalization and specifically focused on small-cap companies with higher book value-to-market value ratios. MSCI World Small Cap Growth Index: A developed world equity index inclusive of the U.S. and Canada, weighted by free float-adjusted market capitalization and specifically focused on small-cap companies with higher earnings growth characteristics. WisdomTree Dividend Index: Measures the performance of dividend-paying companies incorporated in the United States that pay regular cash dividends and meet WisdomTree's eligibility requirements; weighted by indicated cash dividends. WisdomTree Equity Income Index: Measures the performance of the 30% highest-yielding dividend-paying equities in the WisdomTree Dividend Index; weighted by indicated cash dividends. WisdomTree SmallCap Dividend Index: A fundamentally weighted index that measures the performance of the small-capitalization segment of the U.S. dividend-paying market. The Index comprises the companies that constitute the bottom 25% of the market capitalization of the WisdomTree Dividend Index after the 300 largest companies have been removed. The Index is dividend weighted annually to reflect the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year, based on the most recently declared dividend per share.

WisdomTree Funds are distributed by ALPS Distributors, Inc.
Jeremy Schwartz, Christopher Gannatti and Eswarie Subrahmanyam S. Balan are registered representatives of ALPS Distributors, Inc.
© 2014 WisdomTree Investments, Inc. "WisdomTree" is a registered mark of WisdomTree Investments, Inc.

Jeremy Schwartz, Director of Research

As WisdomTree's Director of Research, Jeremy Schwartz offers timely ideas and timeless wisdom on a bi-monthly basis. Prior to joining WisdomTree, Jeremy was Professor Jeremy Siegel's head research assistant and helped with the research and writing of Stocks for the Long Run and The Future for Investors. He is also the co-author of the Financial Analysts Journal paper "What Happened to the Original Stocks in the S&P 500?" and the Wall Street Journal article "The Great American Bond Bubble."

Christopher Gannatti, Research Analyst

Christopher Gannatti began at WisdomTree as a Research Analyst in December 2010, working directly with Jeremy Schwartz, CFA®, Director of Research. He is involved in creating and communicating WisdomTree's thoughts on the markets, as well as analyzing existing strategies and developing new approaches. Christopher came to WisdomTree from Lord Abbett, where he worked for four and a half years as a Regional Consultant.

Source: Looking Under The Hood Of International Smart Beta