When WisdomTree first began offering exchange-traded funds, it was the first company designed exclusively for that purpose. They served up unique, fundamentally-weighted indexes.¬†Best of all, the “newbie” had credible co-founders, like Jeremy Siegel.
Regrettably, I now view WisdomTree with a fair degree of disappointment. They’ve only amassed $6.1 billion in assets across 52 funds. In contrast, Vanguard has $87 billion in 46 funds¬†by focusing on low cost, established indexes. (Note: Only 8 of the 52 WisdomTree funds¬†even have enough assets at $100 million or more¬†to be considered for my ETF Risk Alert service for financial professionals.)
Granted, WisdomTree did manage to hit the jackpot with one superstar,¬†the¬†WisdomTree India Earnings Fund (EPI). Being first to offer exchange-traded fund access to a highly desirable “emerger” cemented its success.¬†Investors were literally screaming at the top of their lungs for an India ETF.
So here’s where my disappointment comes into play. Was anybody really screaming for a “fund of funds” that tracks an index that is similar to the MSCI EAFE Index? Will investors flock to the WisdomTree International Hedged Equity Fund (HEDJ) because they were demanding ways to¬†”neutralize”¬†the currency movements of the U.S. dollar?
Even the WisdomTree President and COO, Bruce Levine, sounded unconvinced: “This currency exposure can be a significant component of your return: in a weak dollar environment foreign currencies can bolster returns while in a stronger dollar environment the opposite is true. Now through HEDJ, investors essentially have a choice of investing in foreign equities with or without currency exposure.‚ÄĚ
This is¬†a big break-through product? HEDJ¬†lets you access Europe AustralAsia, but without the currency exposure?¬†Were investors stepping over themselves and their¬†coattails for this all-in-one¬†”fund-of funds?”
Keep in mind, investors already have access to proven¬†EAFE funds like Vanguard Europe¬†Pacific (VEA) and the iShares MSCI EAFE Index Fund (EAFE) for 0.11% and 0.35% respectively. Moreover, because there’s sufficient volume on these popular ETFs, there’s no additional costs in the bid-ask spread.
In contrast, the¬†WisdomTree International Hedged Equity Fund (HEDJ) has a gross expense ratio of 1%+. As an early incentive, it has a net expense ratio of 0.58%, which is STILL higher than the competition. What’s more, a round-trip of buying and selling HEDJ¬†might cost and additional 0.5% because of thin trading volume.
For example,¬†I examined the bid-ask spread at different times on 1/6/10. A¬†market order would have led¬†to a purchase price 0.22% higher¬†due to the discrepancy between the bid price and the ask price.
Truthfully, I would have preferred to have been explaining why this new ETF vehicle was a gem in the making.¬†I just don’t see it.
If you‚Äôd like to learn more about ETF investing‚Ä¶¬†then tune into ‚ÄúIn the Money With Gary Gordon.‚ÄĚ You can listen to the show ‚ÄúLIVE‚ÄĚ,¬†via podcast or on your iPod. If you‚Äôd like to subscribe to ETF Risk Alert, click here.
Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company does not receive compensation from any of the fund providers covered in this feature. Moreover, the commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.