WisdomTree ETFs: Too Complex, Too Expensive?

by: Felix Salmon posted on: January 10, 2008 | about stocks: WSDT.PK    

I'm fascinated by this profile of Jonathan Steinberg and his Wisdom Tree (WSDT.PK) ETFs. Instead of going overweight companies with the highest market capitalization, as most index funds do, Steinberg's funds go overweight companies with the highest dividends. Wisdom Tree's Jeremy Siegel explains:

By limiting exposure to both bubbles and panics, a value-weighted index can outperform domestic indexes by 1.25% annually, according to the back tests. Overseas, the outperformance will be double or triple that, predicts Siegel.

And competitor Eugene Fama thinks there's something to Steinberg's idea too:

Noted finance professor Eugene Fama argues WisdomTree has simply found a way of repackaging the "value premium," the well-established tendency of value stocks to outperform. Fama also believes in a value focus--he backs Dimensional Fund Advisors, which follows that creed and manages $154 billion in assets--except he thinks a better way to get value is to buy stocks with low price/book ratios.

What confuses me, however, is the way in which Wisdom Tree has launched no fewer than 39 different funds. There are six based on earnings, six based on dividends, ten based on different sectors, and an astonishing 17 based on different ways of slicing the international stock universe.

As an investor in index ETFs myself, I value simplicity greatly: it helps bring down the all-important expense ratio, and it means that I don't need to worry about which fund to pick - I just pick the broadest, simplest fund I can find. Walking through Wisdom Tree's virtual front door, I feel a bit like someone faced with 60 different types of toothbrush at the supermarket. And so I retreat to something cheaper and simpler elsewhere.

This article has 3 comments! Add yours below...
Felix Salmon

Felix Salmon

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This article has 3 comments:

  •  
    ken man
    Jan 10 11:06 AM
    Enhanced Index Funds and ETFs represent and excellent way to invest for long-term investors. The problem for most investors is the complexity that comes from more and more new ETFs being launched. I think there may be over 600 ETFs globally that have been launched with more on the way.

    Most individual investors have a tough time dealing with all this complexity. With ETF's trading intraday - most investors will fall into the trap of becoming over active. The same reason that most mututal fund investors do well. Once hughe advantage of the Dimensional Fund Advisors (or DFA) approach to investing is that there is a built in mechanism for indiviuals to have advisors help them stick with their investments and make better allocation decisions (for more on the logic of enhanced indexing and on DFA approach see for example www.indexvalue.com)

    Given human nature, the majority of investors would be better of outsourcing their investments to an advisor or third party who can do the allocation of investments and use both Dimensional and WisdomTree and even some of the other good low cost ETF families out there.

    Enhanced Indexing and Index Fund Investing (including many ETFs like WisdomTree) makes a lot of sense but it needs to be implemented correctly or it will be all for naught.

    www.indexvalue.com
  •  
    SmartGuyStoc
    ks.com
    Jan 10 11:56 AM
    Caveat Emptor! WisdomTree is a product that is marketed by KudSiegStein:

    smartguystocks.com/?p=...
  •  
    infolode
    Jan 11 08:59 AM
    New methods/ideas are sometimes daunting and we as humans fear change and cling to simplicity. Times are changing and so must we. I think that in a few years you'll laugh at the notion and theme of this article. Surely you're not an overwhelmed comsumer
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