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WisdomTree U.S. Multifactor Stock Selection Is Back

May 07, 2018 1:44 PM ETUSMF
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By Christopher Carrano

When we launched the WisdomTree U.S. Multifactor Fund (USMF) on June 29, 2017, it was difficult for stock pickers to add value. From that point until January 26 of this year, some of the largest names in the S&P 500 Index, such as Microsoft (MSFT), Amazon (AMZN), and Netflix (NFLX), were decimating broader averages with respective returns of 39%, 44%, and 83%, respectively, making a simple market cap-weighted approach hard to beat.

For example, the passive WisdomTree U.S. Multifactor Fund, which selects 200 stocks based on exposure to value, quality, momentum, and low correlation, had 0% exposure to all three of the above-mentioned market generals during this large-cap bull-run period.

Despite this strong headwind, the chart below shows how, since inception until the end of the unrestricted bull run, USMF kept pace with the S&P 500. Then, from January 26 to April 30 (the time of this writing), volatility re-entered the market, allowing USMF's methodology to kick it into the next gear. Over this volatile period, USMF added more than 300 basis points (bps) of excess total return versus the S&P 500.

USMF vs. S&P 500 Total Return, 6/29/17-4/30/18

USMF's Key to Success: Intelligent Active Share

Active share measures how "alike" a strategy is to its benchmark based on the stocks selected and the weights assigned to them. Thus, 0% active share means stocks and weights are identical, while 100% active share means there is nothing in common between a strategy and its benchmark.

It was USMF's high active share and effective stock selection that not only allowed it to keep pace with the S&P 500 as it rose, but also outperform when it turned.

A fund with low active share would have inevitably followed the S&P 500 downward since January 26, just as it rose with the

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In 2006, WisdomTree launched with a big idea and an impressive mission — to create a better way to invest. We believed investors shouldn’t have to choose between cost efficiency and performance potential, so we developed the first family of ETFs designed to deliver both. Today, WisdomTree offers a leading product range that offers access to an unparalleled selection of unique and smart exposures.

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