JonD

Concerns With the New Wisdom Tree ETFs

the "data set" issue is typically what makes me skeptical of most academic finance research. is it at all surprising to anyone that by using a data set culminating in years that have strongly favored small cap value (typically dividend paying) stocks that voila, Mr. Siegel's research concludes that these types of stocks will continue to outperform? Where was this research in 1999?!?!? I'm sure it would have led to different conclusions.

IMHO, the best way to analyze historical data is to use a large collection of sequential, *rolling* 10 year periods. Why? Because 10 years is a reasonably long term horizon for an equity investor. And because when making an investment decision, you really just want to know what your odds are. So, for example, if Siegel's research had concluded that in the 50 rolling 10 year periods dating back to 1956, small cap dividend paying stocks outperformed large cap growth stocks 30 out of 50 times (or more), that might be meaningful information.

but to just use average returns over a fixed period of time completely neglects the fact that the end points really matter.

also, I agree their attitude is a little arrogant considering their only like the 5th ETF family to jump on the dividend bandwagon in the past 2 years. hey guys, welcome to the party. have you heard about that tax rate reduction on dividend income? pretty cool, huh?

all that said, I absolutely applaud Wisdom Tree for filling an ETF niche that for the life of me I can't believe has remained unfilled in today's micro-sliced ETF universe. that being small/mid cap international. there is not a single, broad based, small/mid cap international ETF out there. not one. it's amazing. so, while i think Wisdom Tree went completely overboard by introducing way too products (they really could have covered this strategy with a handful or so of ETFs), I give them credit for being the first to small/mid cap Int'l, even if that's not what they are crowing about.

I'm going to wait for a bit to see if iShares or someone introduces a plain vanilla small/mid cap ETF but if not I'll probably swap out my 1.5% fee active fund (TAVIX) for DIM/DLS by year end or so.