WisdomTree Builds a Better Mousetrap

| About: WisdomTree Managed (WDTI)

WisdomTree just launched the Managed Futures Strategy Fund (NYSEARCA:WDTI) ETF, which squarely competes with the Rydex SGI Managed Futures Strategy Fund (RYMTX).

Both products are designed to match the performance of the S&P Diversified Trends Indicator (DTI) index that uses a rules-based trend-following mechanism to capture the positive and negative momentum in various commodities, currencies and interest rates.

There are several good articles that discuss the strategy in greater detail, but I haven’t seen any reference to the fact that the WisdomTree product is substantially cheaper than the Rydex SGI product. The expense ratio for WDTI is 0.95 percent, while RYMTX has an expense ratio of 2.05 percent.

Prior to entering the mutual fund structure, managed futures were commonly operated as hedge funds and Commodity Trading Advisors (CTAs) that enjoyed the ‘two-and-twenty’ compensation structure. Using the S&P DTI as an index for managed futures, there is no star manager that adds value, so it makes sense that the products would be less expensive.

Because Rydex SGI came to market early in 2007, they could capture a lot of assets and still charge a premium. Like many ETF providers, WisdomTree is effectively saying, “hey, we can do that at half price.” Furthermore, WisdomTree can offer intra-day liquidity that isn’t available in the mutual fund format.

Before jumping in however, it will be important to see the tracking error with WDTI. Rydex SGI has done a good job to date. Beginning on Mar. 30, 2007 and ending on Dec. 31, 2010, the tracking error for RYMTX has only been -1.26 percent, which seems reasonably good given the two percent expense ratio.

It may not take long to get a sense of the tracking error, given the trading activity thus far. The fund launched yesterday and 19,207 shares traded. Today, 101,510 shares traded. The spreads appear fairly tight, just a few pennies throughout today’s session.

Right now, there are approximately a dozen mutual funds using a managed futures strategy, but WisdomTree is the only ETF. While they are the lowest expense ratio among all of the products, 0.95 percent still offers some room for other providers to enter the market and offer index access to the DTI.


I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: The views expressed do not necessarily represent the views of Acropolis Investment Management, LLC. or its members.