For Jeremy Schwartz, WisdomTree’s global head of research, creating the best ETFs is all about partnering with the right expert. Out of its six ETF launches this year, three are in collaboration with experts in the megatrends or proprietary factors areas.
The New York-based fund issuer offers a total of 73 ETFs with a global asset value of nearly $75 billion. Its U.S.-listed funds account for 60% of the assets, with the rest spread out among Europe-listed ETFs.
Since its inception in 2006, the company has evolved from a more fundamentals and value-based strategy for some of its best funds. Today, it comprises an array of the best ETFs in the areas of cybersecurity, bio-revolution, cloud computing, alternative income, enhanced commodities, high growth and emerging markets.
Best ETFs Expand To New Areas
Its newest launch was in partnership with proprietary index provider O’Neil Global Advisors. O’Neil was founded in 1963 by William J. O’Neil, a stock-picking and investment guru who also is the founder of Investor’s Business Daily and author of the bestselling book “How to Make Money in stocks: A Winning System in Good Times and Bad.”
Schwartz, who’s the second-longest employee at WisdomTree, shared with IBD the firm’s newest launches, strategies and outlook in light of the current inflation pressures.
The interview is below.
How WisdomTree’s Strategy Evolved
IBD: How has WisdomTree’s strategy evolved over the years? Did you make any adjustments during or since the pandemic?
Jeremy Schwartz: During the pandemic our strategy didn’t change. We try to provide innovative funds. When we first started in 2006, it was very value-rebalanced focused, back to fundamentals like dividends and earnings. Back then, it was early in ETFs and you were able to offer first-to-market international small caps, emerging markets small caps, Japan and Europe small caps.
We had a value and quality orientation from this first set of products. And today, we are complementing that with the growth side and growth-and-momentum. We’ve been investing more around that megatrend family with really interesting partners.
We were able to bring a venture capital firm, Bessemer Venture Partners, who worked with Nasdaq to create an index for our cloud computing fund, WisdomTree Cloud Computing (WCLD). This was one of our fastest-growing ETFs ever. The work-from-home segment was the primary beneficiary in 2020. The fund did very well and was up 110%. It is up 6.4% year to date.
Growth And Momentum Fund Avoids Overcrowded Stocks
IBD: What are some of the newest ETFs that you’ve launched and why?
Schwartz: Our latest ETF launch, the WisdomTree Growth and Momentum Fund (WGRO), tracks the O’Neil Growth Index — which incorporates proprietary factors from O’Neil Global Advisors for identifying stocks with strong fundamental growth in long-term uptrends but have recent pullbacks, combined with other volatility factors designed to avoid overly crowded stocks.
Earlier in 2021, we launched a cybersecurity fund with Team8: WisdomTree Cybersecurity (WCBR). Team8 is a venture capital group, which has some of the leading cyber experts, including former leaders of the Israeli elite cyber force Unit 8200. They helped us create an index of pure-play cyber stocks positioned for future trends in cybersecurity, which is more and more relevant as you see all the news flow.
At the beginning of June, we launched the WisdomTree BioRevolution Fund (WDNA). We are working with Jamie Metzl, who’s the author of a book called “Hacking Darwin: Genetic Engineering and the Future of Humanity” as our biology guru to help identify the major trends and bio-revolution themes we want exposure to. Most biology funds focus on a very narrow subset, such as just genomics, biotech or health care, where we think the biology revolution is much more than human health.
Best ETFs Of 2021
IBD: Which ETFs were the best performers in 2021?
Schwartz: Our top performers list is dominated by funds that are tied to the reopening of the economy and the cyclical rotation.
The leading top fund is WisdomTree U.S. SmallCap Earnings (EES), up 27% YTD. That’s one of the embodiments of low valuation and it has an earnings-weighted process.
The second-best performer is WisdomTree U.S. SmallCap Dividend (DES), up over 20% YTD.
We’re starting to see some of the European funds perform better. WisdomTree Europe SmallCap Dividend (DFE) is up 16% YTD.
Which ETFs Had The Most Inflows?
IBD: Which ETFs saw the most inflows in 2020 and 2021?
Schwartz: The number one leader this year and last has been WisdomTree Emerging Markets ex-State-Owned Enterprises (XSOE). It’s our flagship fund and it has taken in $1.3 billion of flows in 2021 and took in $2 billion in 2020. It’s tilted more toward the tech and consumer sectors in emerging markets.
In emerging markets, we’re also seeing small caps becoming pretty popular this year. WisdomTree Emerging Markets Small Cap Dividend (DGS) had over $200 million of inflows this year. That is in our top five flowing funds.
IBD: How are the markets shifting now that inflation is a more concrete prospect, and what is your view on that?
Schwartz: We do believe the Fed is going to grapple with rising inflationary pressures for the remainder of the year. We expect to see the taper announcement by the end of the summer. We think these inflation pressures are not transitory and that over time the Fed will rightfully get more hawkish. It wouldn’t be surprising to experience volatility as the markets re-price when the Fed first tapers and then ultimately hikes rates.
Best ETF Strategy For Low Rates Yet Rising Inflation
IBD: How are you strategizing in view of still low rates yet rising inflation?
Schwartz: That is one area where we launched an interesting new fund: WisdomTree Alternative Income (HYIN). It creates a basket of private lending. The fund holds a combination of mortgage REITs, business development companies, and closed-end funds that provide direct lending to consumers or businesses.
The income levels are much higher than people are used to in traditional fixed income because it has more risk — it’s not the traditional risk profile of fixed income. But the underlying representatives in the fund are doing direct lending, so it’s a type of credit instrument, just with more equity-like volatility.
IBD: Do value stocks still have value?
Schwartz: I mentioned EES earlier for the small-cap fund: the P/E ratios on that basket are 13-to-14 times earnings. That’s a very low number.
It always depends on how you create your value basket. We tend to have a quality bias to a lot of our baskets. WisdomTree U.S. Quality Dividend Growers (DGRW) was one of our faster growers in 2020 (up 13.85%). It’s also done well in 2021, up nearly 12% YTD.
Outlook For Remainder Of 2021
The fund is buying high-quality stocks that are trading at a discount to even value indexes today. I think the quality stocks are getting unloved a bit with this high-beta rally, so there are good places for low valuations. Globally, small caps are some of the cheapest valuations you find, whether it’s in Europe, Japan or emerging markets.
IBD: What is your outlook for the rest of this year?
Schwartz: We do think we’re going to see more hawkish surprise headlines in the summer and into the fall. So, we think that is likely to cause some adjustments. That’s a reason to focus on quality stocks that have been out of favor.
But generally, it’s going to be a very strong economy with very robust corporate profits. Valuations are reasonable at an aggregate level. So we think it’s going to be another good year for the market.
YOU MAY ALSO LIKE: