WisdomTree launches multi-factor US equity ETF

Jul 5th, 2017 | By | Category: Equities

WisdomTree has launched a new smart beta ETF focused on US equities on the BATS Exchange. The WisdomTree US Multifactor Fund (USMF) tracks an index created in-house and gives investors exposure to large and mid-cap US equities selected using a multi-factor methodology.

WisdomTree launches multi-factor US equity ETF

Luciano Siracusano, chief investment strategist, WisdomTree.

Luciano Siracusano, chief investment strategist at WisdomTree, commented: “We believe USMF is a simple, intuitive solution for investors seeking to incorporate the potential of factor investing into their US equity allocation.”

The starting universe for index inclusion is the top 800 US-listed stocks by market capitalisation. These stocks are then assigned scores for two fundamental factors (value and quality) and two technical factors (momentum and low correlation). Stocks are assigned a composite factor score based on these four factors.

The 200 companies with the highest composite factors scores are included in the index and weighted by a combination of their composite factor score and trailing 12-month volatility, rewarding less volatile stocks with a greater weight in the index. The index is rebalanced quarterly and the maximum weight for an individual security is capped at 4%. In addition, the fund prevents unwanted sector bets by enforcing sector neutrality versus the parent index.

Siracusano added: “WisdomTree’s existing suite of dividend and earnings weighted ETFs have typically tapped into the smart beta factors of value, quality and size, and in many instances have outperformed the market capitalisation-weighted benchmarks, while exhibiting relatively low tracking error against those benchmarks.

“But, for investors willing to assume higher tracking error relative to market cap benchmarks, a multifactor approach, such as the WisdomTree US Multifactor Fund has the potential to enhance returns, while providing greater factor diversification and thus, may lower volatility compared to single factor approaches.”

As of 3 July 2017, the largest holdings in the index are Oracle, Exxon Mobil, Harris and Broadridge Financial, each with a weight of around 1.3%. Information technology is the largest sector weight with 23%, followed by financials (15%), health care (14%) and consumer discretionary (13%).

The fund has a net expense ratio of 0.28%.

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