WisdomTree U.S. Multifactor ETF’s diversified exposure to a series of time-tested risk factors and defensive tint give it a compelling risk/reward profile that should grade better than the Russell Midcap Index, its category benchmark.
This index strategy features stocks with the best exposure to a quartet of risk factors—value, quality, momentum, and correlation—that should enhance returns and rein in volatility. It favors stocks with balanced multifactor exposure to those that excel in one area but lack in others, precipitating pronounced portfolio-level factor tilts. Value, quality, and momentum’s proven track record of market-beating performance makes them attractive pursuits. Moreover, some factors this fund channels tend to pay off at different times, like value and quality. By spreading its factor bets, this fund positions itself to remain competitive no matter what factor is in vogue. 
A constellation of traits helps this fund protect the downside. The correlation component rewards stocks that zig when the market zags. High-quality stocks tend to be quite stable. The fund’s inverse-volatility weighting approach emphasizes the portfolio’s sturdiest firms, and a relatively large market-cap orientation adds to the defensive profile. Collectively, these characteristics helped the fund capture just 80% of the category benchmark’s downside from its inception through July 2023.
Inverse-volatility weighting pushes this fund into mid-cap territory, but it features scores of large-cap firms. The fund also tethers its sector composition to the combined large- and mid-cap market. While this sparks some differences compared to the Russell Midcap—it’s heavier on technology and lighter on industrials, for example—it ensures that the fund avoids style-related sector tilts. The fund also diversifies well at the firm level; the top 10 holdings represented between 10 and 15% of the portfolio over the past five years. 
This strategy plucks just 200 stocks from the starting universe—a selective policy that makes it look a lot different from the Russell Midcap. Only about 17% of the portfolio overlapped with that benchmark as of July 2023. Investors should not be surprised to see such a differentiated fund out- or underperform the category benchmark by a wide margin. The risk should pay off over the long run, as the fund’s targeted factors should prove worthy reasons to break from the market.

Analyst Rating

A defensive multifactor strategy.

Analyst

Ryan Jackson

GoDaddy

VeriSign

Motorola Solutions

Roper Technologies

F5 Networks

Cisco Systems

SYNNEX

Akamai Technologies

T-Mobile US

This defensive-minded multifactor strategy should measure up best when markets swoon but remain competitive during rallies. It takes smart risks and avoids those unlikely to be rewarded, meriting an Above Average Process Pillar rating.

Above Average

Process

Despite recent turnover, the team at Mellon should continue to deliver tight index-tracking performance. However, the team does not stand out from its peers and the fruits of the expansion are yet to be fully realized, warranting an Average People Pillar rating. 
Marlene Walker-Smith is joined by a team of experienced managers on this strategy, following Thomas Durante's retirement in June 2021. David France, Todd Frysinger, Vlasta Sheremeta, and Michael Stoll are senior portfolio managers who have been with Mellon for 10 years or more. Daphne Du joined the team in April 2023. They worked behind the scenes on the equity index team prior to being named managers. Their wealth of experience and the team's supporting infrastructure should aid the expansion plans, which involve increasing headcount and consolidating trading, risk, and compliance systems. 
The managers draw on a team of analysts to anticipate index changes and handle corporate actions. While the analyst team has facilitated effective index tracking, it is smaller than the analyst teams of other index fund managers, so personnel turnover may have a bigger impact on operations. The managers' primary objective is to track the benchmark as closely as possible. Manager compensation is not tied to any specific tracking-difference targets, but the team is subject to separate risk oversight. 
Mellon merged three arms of its asset-management business in January 2018 and consolidated the trading operations from each unit into a single desk. This expanded the team's trading capabilities and expertise. The team has consolidated its portfolio management, compliance, and trading functions into BlackRock's Aladdin platform to unify operations.

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. Multifactor Fund

USMF tracks an index of 200 US-listed equities. Stocks are selected and weighted by a combination of investment factors.

Designed to provide broad exposure to the Style Box - All Cap Blend category of the market, the WisdomTree U.S. Multifactor ETF (USMF) is a smart beta exchange traded fund launched on 06/29/2017.

Is WisdomTree U.S. Multifactor ETF (USMF) a Strong ETF Right Now?

By Matt Wagner, CFA, Associate Director, Research The dilemma of market concentration is front of mind for asset allocators. At no point in the last 30 years has the S&P 500 Index been so concentrated in just a handful of names.

A Multifactor Solution for a Top-Heavy Market

The WisdomTree U.S. Multifactor Fund provides exposure to companies based on fundamental factors such as value and quality, as well as technical factors like momentum and correlation. By optimizing for a portfolio that does well on all four factors at the same time, USMF ends up with a middling performance as these factors often contradict each other. Instead of USMF's equal-weighted approach, a better multifactor investing process may be OMFL's dynamic allocation approach.

USMF: Jack Of All Trades But Master Of None

Tracking the WisdomTree U.S. Multifactor Index, USMF makes no attempt to go all-in on value or momentum. Instead, it provides adequate exposure to both, prioritizing large caps, adding a quality ingredient, and also paying attention to the low correlation factor. USMF has a rich earnings yield and almost excellent quality characteristics. There is something to appreciate on the low volatility and even growth fronts.

USMF: Excellent Quality Holdings, But Performance Disappoints

With equity markets notching forgettable showings in 2022, it's understandable that some investors are ignoring plain vanilla and other equity weighting methodologies, but this tumultuous environment may also be a good time for market participants to consider select multifactor exchange traded funds in the event stocks rebound.

USMF a Star Among Multifactor ETFs

Timing individual investment factors is difficult, but some advisors and clients still try to do it. There are easier ways of deploying factor-based strategies.

Quit Factor Timing Already: Multi-Factor Model Portfolios

Value investing is again vexing investors, but there are some unique ways for advisors to position client portfolios for a value rebound. Consider the U.S.

Using Model Portfolios to Bet on Value Resurgence

There’s still plenty of talk about when value investing will rebound, but with the right approach, value isn’t on life support as some market observers would have investors believe.

Proper Positioning for a Value Rebound

For several years, market gains have been concentrated in technology and mega-cap growth.

A Core Strategy with Value Prices

In recent years, multi-factor ETFs proliferated at a rapid rate, but proper implementation of these funds still confounds some advisors and investors. The U.S. Multi-Factor Portfolio, part of WisdomTree’s series of Modern Alpha model portfolios, guides advisors with a diverse basket of factor-based strategies.

A Building Block to Multi-Factor Exposure

The current market conditions present an opportune time for investors to give factor investing a closer look.

Give Factor Investing a Closer Look in Today’s Volatility

Traditionally, multi-factor ETFs offer investors exposure to three or four investment factors.

Note The Exposure For This Compelling Multi-Factor ETF

There has recently been some scuttlebutt in the world of exchange traded funds about a saturation point being reached for smart beta funds.

News for WisdomTree U.S. Multifactor Fund ETF (USMF)