WisdomTree Europe bets on Swiss market with smart beta indexing strategies

Switzerland is one of the biggest investors on ETFs. The company entered in this market in April 2015 and now have 8 UCITS ETFs listed on the SIX Swiss Exchange. McNeil (WTE): “A potential solution is to employ smart beta indexing strategies”

Switzerland is one of the biggest investors on ETFs, as well as Italy, Germany and the UK. “There it is one of the most important markets for us”, said Hector McNeil, Co-CEO di WisdomTree Europe, an exchange traded fund (ETF) and exchange traded product (ETP) sponsor, that introduced WisdomTree Europe in Switzerland in April 2015, and now the company have eight UCITS ETFs listed on the SIX Swiss Exchange. According to McNeil a potential solution is for investors to employ smart beta indexing strategies. This is the reason why the company aims on this strategy.

What are the main characteristics of your offer? Are these characteristics successful in the market?
WisdomTree Europe ETFs have the following structure:

• Each ETF is UCITS compliant domiciled in Dublin
• Physically backed and replicated using the basket to provide the index performance. This means counterparty risk is mitigated by the basket of stocks
• Unlike most smart beta strategies we don’t rely on back testing as most of our indices have been running live for 7 to 8 years
• Our ETFs currently do not lend. Over time we may lend and any fees generated will be to the benefit of the fund and not a WisdomTree revenue line
• We are a huge believer in transparency and you can find a significant amount of the detail to the above on the website and documentation

We believe this structure will help Swiss investors, in particular the UCITS structure.

Are you planning to launch new funds?
We will be growing the range of WisdomTree Europe UCITS ETFs within Europe over Q3 and Q4.

In the Swiss market, what are the products on which you bet?
Switzerland is one of the biggest investors on ETFs, as well as Italy, Germany and the UK, there it is one of the most important markets for us.
We believe a potential solution is for investors to employ smart beta indexing strategies.

When you compare smart beta to beta an investor wants exposure to an equity market seeking to generate higher returns, lower risk or both by weighting by measures other than market capitalisation. Smart beta indexes are transparent, rules-based indexes so relatively simple for investors to understand. The strategies provide a good alternative to market cap weighted indices and can increase diversification when held alongside market cap weighted funds.
Smart beta often emphasises (or de-emphasises) exposures to certain factors which have the potential to lead to differentiated returns including sensitivity to the market, small cap vs. large cap companies, value vs. growth styles or momentum and many other different ways to rank companies in an index.

What are the main Smart Beta indexes?
Types of Smart Beta include the following:

• Equal-weighting
• Fundamentally-weighted: dividends, earnings, revenue, multi-factor
• “Risk Premium”-based: Access Return Premia of Beta, Size, Value, Momentum, Quality

From an operative point of view, in this market environment, what strategy do you suggest to adopt?
At WisdomTree, we weight our fundamentally weighted ETFs by dividends because
Dividends have a sound grounding in finance and valuation:
– We believe these fundamentals offer a better measure of a company’s health, value and profitability than stock price alone
– Dividends have theoretical and empirical importance in determining stock values
– It anchors companies to an objective, transparent measure of value: the dividend stream. Dividends are independent of accounting schemes.

Why you weight ETFs by dividends?
Dividends can have an important impact on returns and income:

• Historically, dividends have provided the majority of the stock market’s real return over time (Source: Professor Robert Shiller, with data as of 31/12/2014)
• Can potentially raise the portfolio’s trailing 12-month dividend yield and provide increased income to investors.
• May help create much needed income in a low yielding, low-return environment characterized by volatility and uncertainty.

A dividend-weighted index provides a good alternative to market cap-weighted indices:

• A dividend stream-weighted index with a bias towards higher dividend-yielding stocks should have a higher yield than a cap-weighted index
• We believe that individual stocks generally trade either below or above fair value, therefore a cap-weighted index fund will, almost by definition, mathematically overweight the overvalued stocks and underweight the undervalued stocks.

What are the main results achieved and what are the plans for the next years?
Our European UCITS ETFs are seeing some very good traction and flows. Our Emerging Markets ETFs are also seeing very good flows over the recent weeks. We have just launched WisdomTree’s flagship currency-hedged ETFs in Switzerland and we feel these products will be beneficial to the Swiss Investor.