WisdomTree has introduced two new actively managed multifactor ETFs investing in emerging and developed international equity markets.
The new funds use a proprietary model to select and weight securities, enhancing exposure to quality, volatility, and momentum risk premia.
They are the WisdomTree Emerging Markets Multifactor Fund (EMMF US) and the WisdomTree International Multifactor Fund (DWMF US).
The funds have listed on NYSE Arca.
Each ETF seeks capital appreciation by selecting and weighting securities based on a quantitative model that blends fundamental and technical factors to enhance exposure to the factor risk premia of quality, momentum, and volatility.
The funds focus on large and mid-cap securities, though portfolio managers have the flexibility to dip into small-caps in search of additional return where appropriate.
The strategies will maintain a high active share – the percentage of holdings in a fund’s portfolio that differs from the benchmark index – in the pursuit of outperformance.
Rebalancing will occur at least on a quarterly basis.
Jeremy Schwartz, WisdomTree Director of Research, commented, “There are many higher-cost actively managed funds that tend to hug the benchmark with modest tilts toward active picks. In contrast, EMMF and DWMF are expected to have an active share greater than 80%, and we believe these differentials, combined with our multifactor model, create an opportunity to add value over time.”
The WisdomTree Emerging Markets Multifactor ETF invests across a wide range of non-developed markets but is currently most exposed to securities listed in China (22.8%), Taiwan (17.4%), South Korea (9.7%), Brazil (6.4%), and Malaysia (6.0%), as of 10 August 2018. It has a net expense ratio of 0.48%.
The WisdomTree International Multifactor ETF applies the investment strategy to a range of developed equity markets excluding both the US and Canada. The largest country exposure are currently Japan (27.9%), the UK (13.3%), France (10.1%), Australia (9.9%), and Hong Kong (6.3%). Its net expense ratio is slightly cheaper at 0.38%.
Both funds manage currency risk relative to the US dollar through a dynamic hedging overlay. This process builds upon the currency hedging strategies already utilized by WisdomTree’s passively managed ETFs but incorporates an active element to account for the different liquidity, risk, and hedging costs across developed and emerging market currencies.
EMMF and DWMF currently have aggregate hedge ratios of 70.2% and 83.9% respectively.
The new launches complement the WisdomTree US Multifactor Fund (USMF US), which debuted in 2017 and focuses on the US equity market. Since launch, USMF has accumulated $35 million in assets under management. It is the cheapest of the three ETFs with a net expense ratio of 0.28%.