Having a broad cross section of Funds across global markets and asset classes gives us perspective on how markets are behaving. Depending on whether one wants to look for positive momentum trends continuing or for a reversal in negative sentiment from the list of poor performers, this review of the top five and bottom five performers in the WisdomTree family could be useful for midyear portfolio check-ups and rebalances. For standardized performance of WisdomTree Funds, click here.
Top Five Performers
In the top five performers list, we see international markets represented exclusively, with a minimum return of nearly 20% required to make this list. The single best performer was the WisdomTree China ex-State-Owned Enterprises Fund, CXSE, followed closely by the same ex-state-owned enterprises strategy applied to the broader total emerging market universe, XSOE.
A key differentiator for both of WisdomTree’s Ex-State-Owned Enterprise Funds is a shift in weight toward consumer and technology sectors, and away from the state-owned companies that often are financial sector and energy companies. This has played out well, particularly in China, where CXSE’s performance is dramatically different from its cap-weighted counterparts from either MSCI or FTSE. While MSCI made news by announcing the A-shares China stock inclusion in its emerging market indexes at this year’s review, I believe the bigger story is the sector differentials caused by our ex-state-owned enterprises methodology, which has been a more important factor in driving performance recently.
India also has been a strong performer for WisdomTree in 2017—EPI, which represents a broad cross section of Indian markets, came in at no. 3 on the year-to-date (YTD) list. India has benefited from a strong leader in Prime Minister Narendra Modi, who is pushing the country to modernize its economy with aggressive changes that included rendering 86%1 of the cash in its society worthless—a bid to cut off corruption and informal parts of society that avoided taxation. This move also helped recapitalize banks as it forced people to deposit cash into the formal sector. Coming in the second half of this year, India will have changes to tax policy, which ultimately will lead to a better flow of goods across the country, but may lead to chaos in complying with a new system in the short run. WisdomTree’s earnings-weighted indexing approach for EPI helps manage valuation risks, and by including a broad cross section of the Indian markets—with heavier emphasis on mid- and small-cap stocks than traditional index providers focus on large caps—EPI, we believe, represents one of the better long-run exposures to emerging market growth.
