Every student of the market is intimately familiar with Jeremy Siegel's, Stocks for the Long Run. In it, Professor Siegel espouses a key belief that stock assets hold the answer to enriching the financial well-being of people around the world.
Of course, persuading folks that stocks lead to anything but financial hardship may be a challenge after the worst decade for U.S. stocks on record. Then again, that may be the precise reason why "longer-run"thinkers might see above-average decades down the stock path.
Another key belief for Professor Siegel is the important idea that lower costs through indexing lead to higher returns. A lower cost structure is part of the reason that he helped co-found WisdomTree — a genuine player on the ETF landscape.
Recently, Siegel served up economic commentary and its potential impact for the months ahead in 2009. He noted that credit markets have effectively recovered and that the impact of this should not be understated.
Granted, the credit storm slammed asset values, employment and consumer confidence. Moreover, it has led to the majority of economists forecasting a slow, painful recovery. Yet Siegel believes that the fear of unemployment will subside and that U.S. based consumption will resume for a more robust recovery.
Siegel is particularly surprised by the extent of the foreign market euphoria; specifically, he doesn't see the aggressive cost cutting in European companies to be anywhere near the levels of U.S. companies. His sense is this puts U.S. companies in a more competitive place as the recession ends this year, supporting his estimate that U.S. stocks will end the year 8%-10% higher.
Now… while I agree with about 3/4 of Siegel's assessment… I only have one bone to pick. If Siegel sees good things for the U.S. in the 2nd half, why the tentative upside projection? The S&P 500 is already 8.5% higher… and that's without the dividends!!!
It's likely, of course, that Professor Siegel wrote the feature before earnings season, before the markets went on an 11%, 11-day romp. Moreover, it's more critical to recognize Siegel's main point that the U.S. will rise out of the muck and so will the markets.
|WisdomTree ETFs In 2009 (Through 7/24/09)|
|Some Of The Big Winners||% Gain|
|WisdomTree India Earnings (EPI)||65.0%|
|WisdomTree Emerging Markets Small Cap Div (DGS)||50.4%|
|WisdomTree Emerging Markets High Yield (DEM)||30.3%|
|WisdomTree Pacific excl Japan Dividend Fund (DND)||27.7%|
|WisdomTree MidCap Earnings (EZM)||22.7%|
|WisdomTree International Small Cap Div (DLS)||14.8%|
|WisdomTree Total Earnings Fund (EXT)||11.6%|
|Some of the Small Winners|
|WisdomTree Europe Total Dividend (DEB)||5.0%|
|WisdomTree Dividend Top 100 (DTN)||3.9%|
|WisdomTree MidCap Dividend (DON)||2.1%|
|WisdomTree Middle East Dividend (GULF)||1.8%|
|WisdomTree Small Cap Japan Div (DFJ)||1.6%|
|WisdomTree Total Dividend (DTD)||0.9%|
|WisdomTree LargeCap Dividend (DLN)||0.1%|
By the same token, let's take a look at Siegel's own joint venture, WisdomTree ETFs. One thing that stands out immediately is that risk taking via foreign market investing has led to substantially higher calendar year returns. (Note: Many of these same funds fell harder during the credit crisis, so the rebound may be overstated in calendar year assessments.)
Nevertheless, it does seem clear that investors are favoring greater risks abroad, hedging against the dollar, hedging against the U.S. recession or perhaps all of the above. While Segal is an advocate of overseas equity holdings, I would surmise that he feels the relative underperformance for U.S. equity ETFs will be "corrected" in the "long run."
It should also be noted that dividend-based indexes are ripe with financial stocks. That may account for the smaller percentage gains for the U.S. stock ETFs — gains that are even smaller than market cap weighted indexes like the S&P 500.
Finally, an astute observer might take note that 3 of the 7 "big winners" noted above were based on earnings based indexes, not dividend based indexes. WisdomTree India Earnings (EPI), WisdomTree U.S. Mid Cap Earnings (EZM) and WisdomTree U.S. Total Earnings (EXT) have double-digit percentage gains.
Dividend indexes have a high weighting in financials, utilities and telecom, all of which have struggled a bit in 2009. This may account for WisdomTree U.S. MidCap Dividend (DON) coming in with only 2.1% whereas WisdomTree U.S. Mid Cap Earnings (EZM) served up a startling 22.7%.
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Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.