WisdomTree US SmallCap Earnings ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy's sensible investment philosophy merits an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in volatility exposure and an underweight in yield exposure compared with category peers. High volatility exposure is attributed to companies with a higher standard deviation of returns. And a low yield exposure is rooted in holding fewer stocks with high dividend or buyback yields -- instead, typically holding stocks in an early stage of development. The strategy’s management team earns an Average People Pillar rating. The strategy's parent organization earns the firm a Below Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Cal-Maine Foods

Owens-Illinois

Levi Strauss

Par Pacific Holdings

Xerox

General Cable

Delek US Hlds

Victory Capital Holdings

Vital Energy Inc

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. WisdomTree US SmallCap Earnings Fund earns an Above Average Process Pillar rating. 

The leading factor in the rating is its parent firm's excellent long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.4 stars. This fund tracks an index, which also increases its process rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Lastly, the process is limited by the instability of management across its parent firm. The firm's asset-weighted manager tenure of three years suggests it could do more to retain portfolio managers.

 This strategy, over time, has preferred smaller market-cap companies, compared with others in the Small Value Morningstar Category.  But in terms of style (value/growth) exposure, it does not have much of a bias and resembles the category's typical portfolio. Analyzing additional factors, the managers have continually shown a willingness to take risks over the last few years, demonstrated by the portfolio's high volatility exposure. This orientation tends to pay off most prominently when markets are hot. In recent months, the strategy was more exposed to the Volatility factor compared with its Morningstar Category peers as well. This strategy has also leaned away from the stocks of companies with high dividend or buyback yields over these years. Returning capital to shareholders often is not the highest priority of such businesses. The shares of such companies can deliver strong returns if they fulfill their growth projections, but they also carry more risk. Similarly, in recent months, the strategy also had less exposure to the Yield factor than peers. Moreover, this strategy has been underweighting momentum stocks during these years. Momentum strategies typically bet that stocks that have recently outperformed will continue to do so, and those that have recently underperformed will keep lagging. Avoiding the former and buying the latter could indicate that managers are averse to chasing momentum. In recent months, the strategy also had less Momentum factor exposure than its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in consumer cyclical and technology relative to the category average by 2.8 and 2.7 percentage points, respectively. The sectors with low exposure compared to category peers are basic materials and industrials, with basic materials underweighting the average portfolio by 2.7 percentage points of assets and industrials similar to the average. The strategy owns 911 securities and its assets are more dispersed than peers in the category. In particular, 6.3% of the strategy's assets are concentrated in the top 10 fund holdings, compared to the category average's 28.1%. And finally, in terms of portfolio turnover, on a year-over-year basis, 51% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Above Average

Process

WisdomTree’s equity team is good but unexceptional, earning the strategy an Average People Pillar rating. There’s a sizable bench of five managers listed on the fund. Together, they manage a total of 113 strategies, with solid long-term prospects. The strategies average a Bronze asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Average

People

WisdomTree is improving, but its shaky global fund lineup and uncertain trajectory hold its rating to Below Average. 

WisdomTree’s research organization has long been a strength. Under CIO Jeremy Schwartz, the team has generated creative, economically sound ideas and evolved them into investable products, like the efficient core series. A recent focus on investor education spawned the Portfolio Analysis Tools Hub, an online platform that taps the team’s brainpower to help investors make better investment decisions.

The firm’s product lineup is a mixed bag. To complement its core lineup of fundamentally weighted strategies, WisdomTree has recently launched funds targeting established factors instead of trendy themes—an encouraging reorientation. Yet the shutdown of WisdomTree U.S. Growth and Momentum ETF calls WisdomTree’s commitment to these funds into question, and vestiges from its laxer product-development era look ripe for closure. Its European lineup features risky trading tools that are hard for investors to use well. 

WisdomTree’s future may hinge on WisdomTree Prime, its blockchain-based digital wallet. The launch reflects founder and CEO Jonathan Steinberg’s conviction in the disruptive potential of the blockchain. Prime shouldn’t hurt WisdomTree fund investors (most funds on the platform are zero-fee), but it may distract the firm from shoring up its core offering.

Below Average

Parent

WisdomTree U.S. SmallCap Earnings Fund

EES tracks an index of US small-cap stocks weighted by firms' earnings from core operations. The index is a small-cap subset of the WisdomTree Earnings Index.

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