WisdomTree to turn two passive emerging market ETFs active

Aug 16th, 2018 | By | Category: Equities

WisdomTree has announced that it will convert two passively managed emerging market ETFs listed on Nasdaq into actively managed ETFs.

WisdomTree to turn two emerging market ETFs active

The ETFs will switch from passive to active on 19 October 2018.

Interestingly, neither ETF would be classed as subscale, as is typically the case when an ETF issuer decides to overhaul a product.

Indeed, both funds would be deemed to have sufficient AUM to justify their continued existence in their present state.

The WisdomTree Emerging Markets Consumer Growth Fund (EMCG US) has approximately $40 million while the WisdomTree Emerging Markets Quality Dividend Growth Fund (DGRE US) has $80m.

However, both funds have underperformed the MSCI Emerging Markets Index, the de facto emerging markets equity benchmark and the most popular underlying reference index for EM ETFs.

WisdomTree management will likely be hoping that their portfolio managers can reverse this trend once the funds switch over to an active mandate.

EMCG currently tracks an in-house, fundamentally weighted index that consists of stocks exemplifying growth trends in emerging market consumers and their local economies. The index is composed of 250 companies (150 from the consumer sectors and 100 from the non-consumer sectors) based on their combined ranking of growth, quality, and valuation factors.

The growth factor ranking is based on long-term earnings growth expectations; the quality factor ranking is based on three-year historical averages for return on equity and return on assets; and the valuation factor is based on earnings yield. Companies are then weighted in the index based on their annual net income.

DGRE also currently tracks an in-house, fundamentally weighted index that measures the performance of dividend paying stocks with growth characteristics selected from the WisdomTree Emerging Markets Dividend Index.

The index is comprised of the top 300 companies from the eligible universe with the best combined rank of growth and quality factors. Growth and value factor rankings are based on the same methodology underpinning EMCG. Companies are weighted in the index based on annual cash dividends paid.

The ETFs will change to active funds on 19 October 2018. Both funds will henceforth be managed according to a discretionary model-based approach, with a more variable number of constituents and potentially higher turnover. That said, the overall objectives of the two funds largely remain unchanged.

The funds will also maintain their existing expense ratios of 0.32% and continue to be listed on Nasdaq.

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