WisdomTree adds multifactor tilt to three more equity income ETFs

Apr 27th, 2020 | By | Category: Equities

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WisdomTree has announced changes to its suite of European-listed equity income ETFs, incorporating a multifactor process to tilt portfolios towards value, quality, and momentum risk premia.

WisdomTree adds multifactor screen to equity income ETFs

WisdomTree’s US, European, UK, and emerging market equity income ETFs will all include a multifactor process.

The updated methodology will take effect next week, on 6 May 2020, and will apply to three ETFs providing exposure to European, UK, and emerging market equities.

The funds are the $30m WisdomTree Europe Equity Income UCITS ETF (EEIE LN), which comes with an expense ratio of 0.29%; the $10m WisdomTree UK Equity Income UCITS ETF (WUKD LN), 0.29%; and the $40m WisdomTree Emerging Markets Equity Income UCITS ETF (DEM LN), 0.46%.

Similar changes were already applied to the WisdomTree US Equity Income UCITS ETF (DHS LN) in December 2019.

The remaining ETF in the suite, the WisdomTree Emerging Asia Equity Income UCITS ETF (DEMA LN), will, for the time being at least, maintain its original investment strategy

WisdomTree’s equity income ETFs offer investors broad exposure to their respective markets while focusing on companies with high dividend streams, a major source of return for investors. The introduction of a multifactor element may help the funds avoid potential dividend traps, provide additional sources of return, and reduce the cyclicality of individual factor strategies.

Methodology

The funds track internally developed indices that screen their respective universes to select the top 30% of securities ranked by dividend yield (top 33% for the UK equity income ETF). Common stocks, REITs, and holding companies are generally eligible for inclusion.

The indices then weight constituents by their “dividend stream” which is calculated by multiplying the indicated regular annual dividend-per-share number with the number of shares outstanding.

The newly updated methodology will employ two key changes.

Firstly, securities will only be selected for index inclusion if they also rank in the top 80% of the universe according to a multifactor score that considers value, quality, and momentum characteristics.

Secondly, the weighting scheme will be modified to tilt towards companies with higher multifactor scores. After the weighting by dividend stream, constituents that rank in the top third of the index by multifactor score will have their weight increased by 50%, while those ranking in the bottom third will have their weight reduced by 50%.

The funds affected are listed across a range of exchanges including LSE, Xetra, SIX Swiss Exchange, and Borsa Italiana.

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