WisdomTree, begun trading of 2 new dynamic long/short U.S. equity strategy ETFs, the WisdomTree Dynamic Bearish U.S. Equity Fund (BATS: DYB) and the WisdomTree Dynamic Long/Short U.S. Equity Fund (BATS: DYLS) on Wednesday, December 23, 2015. Here is a synopsis of the new ETFs:
1.
FUND INFORMATION:
| Symbol: DYB | Exchange: BATS |
| Name: WisdomTree Dynamic Bearish U.S. Equity Fund | Net Expense Ratio: 0.48% |
FUND OBJECTIVE:
The WisdomTree Dynamic Bearish U.S. Equity Fund seeks to track the price and yield performance, before fees and expenses, of the WisdomTree Dynamic Bearish U.S. Equity Index.
REFERENCE INDEX:
The WisdomTree Dynamic Bearish U.S. Equity Index includes:
(i) long U.S. equity positions (Long Equity Basket) or long U.S. Treasury positions (Long Treasury Basket); and
(ii) short U.S. equity positions (Short Equity Basket). The Long Equity Basket consists of approximately 100 U.S. large- and mid- capitalization stocks that meet Index eligibility requirements and have the best combined score based on fundamental growth and value signals.
The starting universe of companies eligible for inclusion in the Long Equity Basket includes companies that meet the following criteria:
(i) incorporated and headquartered in the United States;
(ii) listed on the New York Stock Exchange or Nasdaq Stock Exchange; and
(iii) market capitalization of at least $2 billion and $3 share price minimum as of the Index screening date.
Eligible securities for the Long Equity Basket are organized by sector such that the sectors within the Long Equity Basket are weighted the same (i.e., sector neutral) as the 10 sectors in a market capitalization weighted portfolio of the largest 500 U.S. companies. Within the sector designations, stocks are selected based on a sector-specific indicator which scores companies based on fundamental growth and value signals, as described below, and the stocks with the highest scores within each sector are selected for a total of approximately 100 stocks in the Long Equity Basket. Stocks are then weighted within each sector of the Long Equity Basket according to their volatility characteristics with greater weight given to stocks with lower volatility. Weighting is determined by using the standard deviation (a measure of volatility) and beta (a measure of correlation) of such stocks. The Long Treasury Basket consists of U.S. Treasury bills with maturities of up to 1 year.
The Short Equity Basket consists of short positions in the largest 500 U.S. companies, weighted by float-adjusted market capitalization, designed to act as a market risk hedge. Short selling involves selling a security that is not owned but has been borrowed from a third party with the intention of buying an identical security at the market price at a later date to return to that third party. Unlike long positions which profit from increases in the price of a security, short positions profit from the falling price of a security.
The Index provides a dynamic allocation of either
(i) 100% exposure to the Long Equity Basket and 0% exposure to the Long Treasury Basket, or
(ii) 0% exposure to the Long Equity Basket and 100% exposure to the Long Treasury Basket, while employing a variable hedge of either 75% or 100% exposure to the Short Equity Basket, based on a quantitative rules-based market indicator that scores growth and value market signals. Accordingly, the Index is designed to have favorable returns during a declining U.S. equity market (a “bear” market”). The growth and value signals are determined by the following criteria:
(i) the growth indicator is predicated on the change of the profit margin (e.g., operating income to sales) and profit quality (e.g., operating cash flow over operating income) of the securities in the starting universe of companies; and
(ii) the value indicator is predicated on the value of the price multiples (e.g., market capitalization to equity) of the securities in the starting universe of companies. The resulting value and growth scores are equally weighted and calculated using rolling threemonth averages. During times when the market indicator model shows attractive readings (high score) on valuation and growth characteristics, which are designed to indicate more favorable conditions for the U.S. equity market environment, the Index provides 100% exposure to the Long Equity Basket (and, accordingly, 0% exposure to the Long Treasury Basket) and a hedge with 75% exposure to the Short Equity Basket. During times when the market indicator model shows unattractive readings (low score) on valuation and growth characteristics, which are designed to indicate less favorable conditions for the U.S. equity market environment, the Index provides 0% exposure to the Long Equity Basket (and, accordingly, 100% exposure to the Long Treasury Basket) and a hedge with 100% exposure to the Short Equity Basket.
The stocks within the Index’s Long Equity Basket are reconstituted and rebalanced on a quarterly basis. The amount of exposure to the Index’s Short Equity Basket is reset on a monthly basis; however, the stocks within the Index’s Short Equity Basket are reconstituted and rebalanced annually.
The Fund will generally hold long positions (and may hold short positions) in a manner similar to the Index, although the Fund’s exposure to short positions is expected to be obtained through derivatives, such as futures contracts and swaps.
Fund’s Current Exposure (12/24/15):
| T-Bills | 100% |
Useful Links:
DYB Home Page
2.
FUND INFORMATION:
| Symbol: DYLS | Exchange: BATS |
| Name: WisdomTree Dynamic Long/Short U.S. Equity Fund | Net Expense Ratio: 0.48% |
FUND OBJECTIVE:
The WisdomTree Dynamic Long/Short U.S. Equity Fund seeks to track the price and yield performance, before fees and expenses, of the WisdomTree Dynamic Long/Short U.S. Equity Index.
REFERENCE INDEX:
The WisdomTree Dynamic Long/Short U.S. Equity Index includes long U.S. equity positions (Long Equity Basket) and, at times, short U.S. equity positions (Short Equity Basket).
The Long Equity Basket consists of approximately 100 U.S. large- and mid-capitalization stocks that meet Index eligibility requirements and have the best combined score based on fundamental growth and value signals. The starting universe of companies eligible for inclusion in the Long Equity Basket includes companies that meet the following criteria:
(i) incorporated and headquartered in the United States;
(ii) listed on the New York Stock Exchange or Nasdaq Stock Exchange; and
(iii) market capitalization of at least $2 billion and $3 share price minimum as of the Index screening date.
Eligible securities for the Long Equity Basket are organized by sector such that the sectors within the Long Equity Basket are weighted the same (i.e., sector neutral) as the 10 sectors in a market capitalization weighted portfolio of the largest 500 U.S. companies. Within the sector designations, stocks are selected based on a sector-specific indicator which scores companies based on fundamental growth and value signals, as described below, and the stocks with the highest scores within each sector are selected for a total of approximately 100 stocks in the Long Equity Basket. Stocks are then weighted within each sector of the Long Equity Basket according to their volatility characteristics with greater weight given to stocks with lower volatility. Weighting is determined by using the standard deviation (a measure of volatility) and beta (a measure of correlation) of such stocks.
The Short Equity Basket consists of short positions in the largest 500 U.S. companies, weighted by float-adjusted market capitalization, designed to act as a market risk hedge. Short selling involves selling a security that is not owned but has been borrowed from a third party with the intention of buying an identical security at the market price at a later date to return to that third party. Unlike long positions which profit from increases in the price of a security, short positions profit from the falling price of a security.
The Index maintains 100% exposure to the Long Equity Basket while employing a variable hedge ranging from 0% to 100% exposure to the Short Equity Basket based on a quantitative rules-based market indicator that scores growth and value market signals. The growth and value signals are determined by the following criteria:
(i) the growth indicator is predicated on the change of the profit margin (e.g., operating income to sales) and profit quality (e.g., operating cash flow over operating income) of the securities in the starting universe of companies; and
(ii) the value indicator is predicated on the value of the price multiples (e.g., market capitalization to equity) of the securities in the starting universe of companies. The resulting value and growth scores are equally weighted and calculated using rolling three-month averages. During times when the market indicator model shows attractive readings (high score) on valuation and growth characteristics, which are designed to indicate more favorable conditions for the broader U.S. equity market, the Index is unhedged with 0% exposure to the Short Equity Basket. During times when the market indicator model shows unattractive readings (low score) on valuation and growth characteristics, which are designed to indicate less favorable conditions for the broader U.S. equity market, the Index seeks to hedge broader U.S. equity market risk by increasing exposure to the Short Equity Basket.
The stocks within the Index’s Long Equity Basket are reconstituted and rebalanced on a quarterly basis. The amount of exposure to the Index’s Short Equity Basket is reset on a monthly basis; however, the stocks within the Index’s Short Equity Basket are reconstituted and rebalanced annually.
The Fund will generally hold long positions (and may hold short positions) in a manner similar to the Index, although the Fund’s exposure to short positions is expected to be obtained through derivatives, such as futures contracts and swaps.
Top 10 Holdings (12/24/15):
| McDonalds Corp | 3.20% |
| Baxter International Inc | 2.96% |
| eBay Inc | 2.61% |
| Quest Diagnostics Inc/DE | 2.55% |
| Lockheed Martin Corp | 2.00% |
| Lancaster Colony Corp | 1.97% |
| Spectra Energy Corp | 1.89% |
| General Growth Properties Inc | 1.85% |
| Weyerhaeuser Co | 1.82% |
| CH Robinson Worldwide Inc | 1.73% |
Sector Breakdown (12/24/15):
| Information Technology | 19.27% |
| Consumer Discretionary | 16.48% |
| Financials | 16.26% |
| Health Care | 12.52% |
| Industrials | 11.58% |
| Consumer Staples | 8.45% |
| Energy | 6.18% |
| Materials | 4.38% |
| Utilities | 2.65% |
| Telecoms | 2.22% |
Useful Links:
DYLS Home Page
ETFtrack comment:
Here is a comment from Jeremy Schwartz, WisdomTree Director of Research:
“WisdomTree’s strategies challenge the traditional long/short and hedge fund community with systematic, liquid long/short index-based ETFs. DYLS and DYB are designed to generate alpha at the core through quantitative and fundamental stock selection – while also having the ability to hedge market risk dynamically.”