Being Careful - Opportunistic and selective is now the order of the day

23 March 2023

ESGGatekeepersGrowthMeeting of MindsOpportunitiesProfitabilityStrategy

Facilitator: Blaise Cardozo. Expert: Pierre Debru


  1. WisdomTree provides “Smart Beta” ETFs and is a pioneer of factor investing
  2. More than 12 billion of assets are tracking WisdomTree’s flagship strategy “Quality Dividend Growth” worldwide
  3. Professor Siegel's (Professor of Finance at the Wharton School) academic research showing dividend-paying companies tend to offer superior long-term performance with lower risk has influenced the construction of strategies by WisdomTree Investments from inception 

Discussion Points:

The outlook for 2023 is completely different from 2022, which was dominated by geopolitical risks, rising inflation and aggressive monetary tightening.

2023 is seeing falling inflation, will face rolling recession risks and earnings contraction, and central banks may pivot – markets views of interest rates expectations have changed 3 times this year.

Defining Quality:

The key measure is operating profitability. Start with eligible universe of dividend-paying large cap stocks with earnings yield higher than dividend yield.

Apply ESG and risk filtering and remove stocks which don’t get through. Select top stocks from remainder based on estimated earnings growth (50%), return on equity (25%) and return on assets (25%) 

How WisdomTree manages its ETFs:

Two shareclasses: income and accumulation (cash reinvested as per current model). Not rigidly adhering to index sector / country weightings: have stock, sector and country caps.

Annual rebalancing: expect to change about 30% of holdings and can delay until markets have calmed down if something is going on (no evidence to show that more frequent is better, so take lower cost approach).

ESG reviews quarterly: if holding needs to be excluded, sell and invest cash in the rest (not full re-balance). Stock weightings by dividend paid, not market cap, so top 10 can be quite different from index. Fees at 29 to 38 basis points

Key Takeaways:

  • Smart Beta can give better long-term performance than most active managers
  • Quality stocks outperform over the long term, with lower volatility
  • High quality dividend-paying stocks are an effective way to navigate volatile, uncertain markets. More likely to be resilient and to increase dividend
  • Not designed as a defensive strategy but good to hold at any time