For this episode of “ETF 360” (recorded before the ETF Trends rebrand to VettaFi), VettaFi’s vice chairman Tom Lydon spoke with Jeff Weniger, CFA and head of equity strategy at WisdomTree, about the rotation back to value happening in markets.
Looking back, it’s been around 14–15 years of largely growth for markets, with occasional 6–12 month breaks from the growth trend. This pattern has been going on since before the financial crisis, Weniger explained, and for many advisors that means that much of their whole career has been in this strong growth environment.
The pendulum is now swinging the other way, said Lydon, with large amounts of money in motion as concerns around high valuations in U.S. equities and rising interest rates have advisors and investors seeking refuge elsewhere.
“It used to be that higher rates would hurt the dividend-type companies, but now that notion has seemingly changed. Higher rates means trouble for distant cash-flow growth companies, and our dividend mandates like DLN (the WisdomTree U.S. LargeCap Dividend Fund) for example… that stuff has been saving ground,” Weniger explained.
DLN is a fund that has been around for 15 years and is a classic now, according to Weniger. Year-to-date performance is in the black for the fund and for funds that follow similar investment strategies, whereas much of the market is in the red for the year.
“Dividends and shareholder yield are two of the main concepts that we’ve been talking about at WisdomTree,” Weniger said.
Advisors and investors who had even basic allocations to the S&P 500 have inadvertently moved to be more growth-heavy over the years as the index has become increasingly weighted to growth.
The underperformance of stocks and bonds in the first quarter of 2022 has caused panic for some, and it’s a different kind of response than what was seen in the March 2020 COVID crash in markets, where hyper-growth stocks were what investors piled into.
“Here in this little stealth, quiet, bear market underneath the surface here, for the last four or five months it’s been all about just quietly accumulating staples and utilities and these types of things that populate dividend indices,” Weniger explained.
The WisdomTree U.S. Value Fund (WTV) utilizes shareholder yield screens (buyback yield and dividend yield), currently has a net buyback yield around 8%, and is positioned strongly should the markets plunge and companies buy back equity in large quantities. Advisors and investors are asking much more about consistent buyback companies given current market conditions and future market concerns.
“When you look back at the last 50 years at the real, real ugly markets — maybe the Fed will give us one of those markets if they keep hiking like this — the ones that are in the real trouble zones are the share diluters, and that’s Nasdaq stuff, that’s 500 growth stuff,” Weniger said.
WisdomTree is anticipating 5–10 years where value will be a strong play, and funds like DLN and WTV offer advisors a chance to capitalize on that pendulum swing from growth to value.
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