Concerns With the New Wisdom Tree ETFs

David Fry profile picture
David Fry

There’s been a lot of hype and positive comments about WisdomTree’s new ETF series. There may be good reason for this, but only time will tell. If you have a good reputation, are an award winning economist like Jeremy Siegel and have good Wall Street connections, then many think your theories applied to markets can be instant winners.

No doubt Wisdom Tree Investments agrees, for they’ve launched 20 ETFs based on indexes linked to Siegel’s research which advises that companies with a record of increasing dividends will outperform those that don’t. Of course, it’s a more complex effort than this simple statement, but you get the idea.

This research applied to index creation and ETF issuance may prove to be the greatest thing since, well…dividends. Only time will tell, because only historical index data from June l, 2006 is downloadable. Wisdom Tree has some third party proprietary index graphs showing “hypothetical” performance going back to 1996 with this footnote:

Returns for the WisdomTree Domestic Indexes for periods prior to January 1, 2006 utilize data provided by the Center for Research in Securities Prices, Graduate School of Business, University of Chicago ("CRSP"). Such data is proprietary and confidential information of CRSP and is used with permission. CRSP is not responsible for investment decisions, damages or losses resulting from the use of the WisdomTree Indexes or CRSP data.

Aside from missing January 1- June 1, 2006, the question is why can’t we view daily data for these indexes back thru the years to 1996? Is there a fee sharing or liability issue? With all respect to Wisdom Tree and Professor Siegel, are we just supposed to blindly trust them? Where’s the transparency?

I’m reminded of one of my “Sacred Cows” which relates a much overlooked story about the famed economist, John Maynard Keynes.

Years ago, when I was running my own brokerage firm, an opportunity was presented for me to hire a gentleman who possessed a PhD. Shortly after I retained his services, I excitedly told my mentor and best client of what I thought was a hiring coup for my company. His silence let me know he wasn't impressed.

About two weeks later, I received a plain manila envelope from him containing a photocopy of an essay entitled, "From the Garden." It was written in the 1930's about the great economist John Maynard Keynes. In London during this period, a group of very smart and well-connected financiers had convinced Keynes to manage a public fund that they would market. His stellar reputation and credentials would surely bring in many clients, and high fees would flow to these organizers and Keynes. It never occurred to them that Keynes couldn't manage money. During a short period of time, the value of the assets garnered by these individuals and entrusted to Keynes dwindled away. He was quietly removed from the management of the portfolio and returned to his previous role as an economist.

Wisdom Tree has also assembled a stellar cast of Wall Street notables in addition to Siegel. Things have changed a lot since the 1930s. But, one thing hasn’t changed—Wall Street promoters.

Like I said, these funds may prove the best thing since dividends themselves. But to verify performance data, why not release detailed historical data to download and evaluate? If that doesn’t occur, then Wisdom Tree has just made my life 20 times easier since I’ll not be using these products until adequate data is assembled. That could take years. This product launch seems sloppy and arrogant frankly.

Maybe some shareholders don’t think these products will be that well received based on the stock’s performance these past two days:

This article was written by

David Fry profile picture
David Fry writes a subscription newsletter focused on technical analysis of exchange-traded funds, called ETF Digest ( Dave founded the ETF Digest in 2001 and was among the very first to see the need for a publication that provided individual investors with information and actionable advice on global ETF investing. We particularly like the overview of financial markets that his work provides. Even if you're not a fan of chart analysis, Dave provides insight and commentary into which global markets are "working" and why. Specializing as a market strategist and tactician, Fry focuses on evaluating, creating and implementing a variety of ETF portfolios for individual investors and financial professionals. His philosophy and approach incorporates fundamental with technical analysis in pursuit of risk management and capital preservation especially during uncertain and volatile times. His new eBook, The Best ETFs: U.S. Equities,is now available on Amazon Kindle. Written as a cheat sheet to only the best ETFs for you or your client’s portfolios. For those that don't have a Kindle, you can purchase the pdf here: The Best ETFs: US Equities []

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