WisdomTree Emerging Markets Local Currency Debt’s undistinguished quantitative based approach managed by a lean team that lacks a deeper emerging markets expertise, supports a Morningstar Medalist Rating of Neutral.
Continued team turnover and limited expertise in emerging-markets local-currency debt limit this team’s appeal. This strategy is backed by teams from WisdomTree and Mellon Investment Corporation with adequate experience in fixed-income exchange-traded fund management but limited emerging-markets local-currency debt expertise. Rick Harper, WisdomTree's head of fixed income and currency, remains on the investment committee, but the quantitative strategist on his team hired in 2021 departed in 2022. Stephanie Shu and Brad Krom, both long-time managers members of the investment committee, stepped down from their roles in 2020 and 2022, respectively. David Nieman, who joined Mellon in 2013, is focused on emerging-markets multifactor strategies and joined the investment committee when Paul Benson, former manager here,  moved to another role within the firm in 2020. Shu and Benson left the firm to join a competitor in 2021. Greg Lee, who has assisted Neiman on this strategy since 2017, is now a senior portfolio manager here. Nancy Rogers, managing director and head of index portfolio management at Mellon, was promoted to comanager here in late 2020. The most recent addition to the committee in 2023 is William Newton, who has been a portfolio manager with Mellon since 2012.
The strategy's process is largely based on WisdomTree's rules-based quant framework, which stratifies the roughly 20 index constituents in four tiers based on quality, trading costs, and liquidity, among other metrics. The investment committee’s qualitative analysis confirms which individual countries and currencies land in each tier, and it meets at least twice a year. The strategy avoids frontier countries for liquidity purposes, a sensible rule that explains the lack of exposure to Uruguay, or off-index names that frequently show up in rival portfolios.
This combination of quant inputs and qualitatively driven active bets has not led to any discernible edge overtime. The team’s willingness to take off-index exposure, notably holding a 4% average exposure to India since 2015 hasn’t been very rewarding. Despite the cost advantage, the long-term performance record isn’t impressive with its 2% annualized loss over the last decade through April 2023 lagging 70% of its rivals. That said, the strategy managed to catch up over the last one year through April 2023 with local currency debt outperforming; its 7.6% gain outpaced 80% of its peers.

Analyst Rating

Does not stand out.

Analyst

Saraja Samant

This straightforward and mainly quantitative approach lacks a competitive edge. It earns an Average Process Pillar rating.
The approach uses WisdomTree’s rules-based quantitative framework to sort index constituents into one of four tiers based on quality, trading costs, and liquidity. The strategy’s goal to outperform its JPMorgan GBI-Emerging Markets Global Diversified Index benchmark with less volatility over a market cycle is reasonable, but the investment committee’s qualitative analysis hasn’t led to a discernible edge.
At each biannual meeting, the investment committee confirms which of the roughly 20 index constituents belong in each tier, sizes individual positions, and discusses political risks that might affect position sizing. The group has also met on an ad hoc basis, such as when volatility picked up with Argentine and Turkish debt in 2018, and more recently Russia’s invasion of Ukraine in 2022.
The team aims to outperform through security selection and does not actively manage duration (it typically ranges from a half year above or below the index’s). Most individual country positions land within 100-200 basis points around the benchmark, a practical feature that should prevent the fund from getting into serious trouble given the relatively small number of issuers in its index. However, the investment committee’s views have occasionally led the strategy’s positions to meaningfully differ from the bogy, including out-of-benchmark names like India which has led to mixed results.

Average

Process

Continued turnover and a lean team with limited emerging-markets local debt and currency expertise underpins a Below Average People Pillar rating. 
This strategy is backed by a handful of managers and analysts from WisdomTree and Mellon Investments Corporation, but contrary to most peers, few key decision makers have extensive local emerging-market debt and currency experience. 
Rick Harper serves as WisdomTree’s head of fixed income and currency and oversees the firm’s suite of fixed-income and currency ETFs. Bradley Krom, who worked alongside Harper as a research director has stepped down from the role. Behnood Noei joined WisdomTree as an associate director taking over Krom’s duties. Both Harper and Noei sit on the fund’s investment committee. The turnover on the quantitative team remains high; Jefferson Zhou, who joined in July 2021 to replace a departure in 2020, left the firm last year. The team expects to fill in that position shortly. 
David Nieman, who joined Mellon in 2013, is focused on emerging-markets multifactor strategies and took over for Paul Benson on the investment committee in 2020. Gregg Lee, who previously assisted Neiman, was promoted to a senior portfolio manager and a member of the investment committee. Nancy Rogers, managing director and head of index portfolio management at Mellon, was promoted to being a manager here in late 2020. The most recent addition to the committee in 2023 is William Newton, who has been a portfolio manager with Mellon since 2012. 
While all the members of the investment committee collectively take the investment decisions on this strategy, Neiman, Lee and Rogers are the named managers here.

Below 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.

Parent

WisdomTree Emerging Markets Local Debt Fund

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