WisdomTree Launches U.S. MidCap Quality Growth (QMID) and U.S. SmallCap Quality Growth (QSML) Funds

Rhea-AI Summary

WisdomTree, Inc. (NYSE: WT) announced the launch of the U.S. MidCap Quality Growth Fund (QMID) and U.S. SmallCap Quality Growth Fund (QSML) on the NASDAQ. Both funds aim to track the price and yield performance of the WisdomTree U.S. MidCap Quality Growth Index and WisdomTree U.S. SmallCap Quality Growth Index, with expense ratios of 0.38%. The funds focus on identifying stocks with quality and growth characteristics, particularly in the smaller capitalization segments of the market. WisdomTree's Global Chief Investment Officer emphasized the importance of the right index screens and rebalancing process for performance. The funds allow investors to gain exposure to U.S. mid- and small- market capitalization companies with strong quality and growth characteristics, while avoiding speculative stocks with low or negative profitability.

Positive

• The launch of the U.S. MidCap Quality Growth Fund (QMID) and U.S. SmallCap Quality Growth Fund (QSML) provides investors with opportunities to track the price and yield performance of the WisdomTree U.S. MidCap Quality Growth Index and WisdomTree U.S. SmallCap Quality Growth Index.
• Both funds have expense ratios of 0.38% and seek to identify stocks with quality and growth characteristics, particularly in the smaller capitalization segments of the market.
• WisdomTree's Global Chief Investment Officer highlighted the importance of the right index screens and rebalancing process for performance, emphasizing the funds' sound long-term factor strategies and suitability for today’s macro landscape.
• The funds allow investors to gain core exposure to U.S. mid- and small- market capitalization companies with strong quality and growth characteristics, while avoiding speculative stocks with low or negative profitability.

Negative

• None.

Insights

Financial Analyst

When analyzing the launch of WisdomTree's U.S. MidCap Quality Growth Fund (QMID) and U.S. SmallCap Quality Growth Fund (QSML), it's essential to consider the strategic positioning of these funds in the current market. With an expense ratio of 0.38%, these funds are competitively priced, potentially attracting cost-conscious investors. The emphasis on quality and growth characteristics addresses investor concerns about the stability and potential of mid- and small-cap investments, particularly in a volatile market.

Historically, mid- and small-cap stocks have offered higher growth potential than large-cap stocks, albeit with increased risk. By focusing on companies with strong profitability ratios and earnings growth, these funds aim to mitigate some of that risk. This approach could appeal to investors seeking growth opportunities outside of the large-cap space, which has been dominated by mega-cap tech stocks. However, the success of QMID and QSML will largely depend on the accuracy of the index's screening process and the ability to adapt to market changes.

Market Research Analyst

The introduction of QMID and QSML into the market is indicative of a broader trend where investment firms are creating products that cater to niche investor preferences. These funds are designed to capitalize on the perceived inefficiencies within the mid- and small-cap segments, where quality growth stocks may be undervalued. The funds' strategy to avoid 'story stocks' with low or negative profitability is a direct response to investor wariness of speculative investments in the current higher interest rate environment.

It's also worth noting that the market has seen a divergence in the performance of growth indices, with some removing strong technology and growth names due to momentum screens. The rebalancing process employed by QMID and QSML could potentially offer a more stable growth trajectory, but this will need to be monitored over time to assess performance against peers and market benchmarks. The funds' ability to navigate an economic landscape marked by rising interest rates and potential regulatory changes will be critical to their long-term success.

Economist

The launch of these funds occurs in a macroeconomic context characterized by rising interest rates, which can have a significant impact on growth stocks. Typically, growth stocks are more sensitive to interest rate fluctuations because their value is heavily dependent on future earnings, which are discounted more steeply as rates rise. The funds' strategy to select stocks with robust quality metrics aims to provide a buffer against such sensitivity, as these companies are often more resilient during economic downturns.

Moreover, the performance spread between high-profitability and low-profitability companies is significant, especially within small-cap firms. This indicates that a well-executed quality-growth strategy could outperform the broader market, particularly in segments where high quality is less prevalent. However, the challenge for these funds will be to maintain this delicate balance between growth and quality in a dynamic economic environment where market sentiment can shift rapidly.

NEW YORK--(BUSINESS WIRE)-- WisdomTree, Inc. (NYSE: WT), a global financial innovator, announced today the launch of the U.S. MidCap Quality Growth Fund (QMID) and U.S. SmallCap Quality Growth Fund (QSML) on the NASDAQ. QMID and QSML seek to track the price and yield performance, before fees and expenses, of the WisdomTree U.S. MidCap Quality Growth Index¹ and WisdomTree U.S. SmallCap Quality Growth Index², respectively. Both funds have expense ratios of 0.38%.

QMID and QSML aim to identify stocks that have both quality and growth characteristics to avoid having to make sacrifices on either factor. Higher operating profitability (higher quality) has outpaced lower quality over time. That outperformance has been most pronounced in the smaller capitalization segments of the market.

Among investors who allocate to quality, characterized by higher efficiency and profitability, many often think large-cap³ companies equal quality. However, high-profitability small-cap⁴ companies have outperformed high-profitability large-caps over the long-run. The performance spread⁵ between high-profitability and low-profitability companies is even greater within small-cap companies as opposed to large-cap companies.

According to Jeremy Schwartz, WisdomTree’s Global Chief Investment Officer, “The recent divergent and rather large spreads between major growth indexes makes it abundantly clear that having the right index screens and rebalancing process are critical for performance. Certain growth indexes removed the strongest technology and growth names ahead of the 2023 mega-cap tech rally due to momentum screens that ranked those stocks poorly at year-end 2022. Certain other small-cap growth indexes include as much as 40% of speculative, unprofitable companies that appear particularly vulnerable in today’s higher interest rate environment that makes capital raising to fund operations more difficult. By employing a process that focuses on large-, mid-, and small-cap stocks scoring highly on a combined feature set of robust quality (profitability ratios) and strong earnings and sales growth, we believe QMID and QSML are not just sound long-term factor strategies but a great combination for today’s macro landscape.”

QMID and QSML: What’s Under the Hood?

By screening for quality⁶ in addition to growth, the WisdomTree U.S. MidCap and SmallCap Quality Growth Indexes seek exposure to fast-growing companies with high quality scores, while filtering out highly speculative names with weaker profitability measures. QMID and QSML allow investors to:

• Gain core exposure to U.S. mid- and small- market capitalization companies that display strong quality and growth characteristics
• Avoid the mid- and small- cap “story stocks” with low, or negative, profitability

Investors should carefully consider the investment objectives, risks, charges and expenses of the Funds before investing. To obtain a prospectus containing this and other important information, please call 866.909.9473 or visit WisdomTree.com/investments to view or download a prospectus. Investors should read the prospectus carefully before investing.

Important Risk Information

There are risks associated with investing, including possible loss of principal. Growth stocks, as a group, may be out of favor with the market and underperform value stocks or the overall equity market. Growth stocks are generally more sensitive to market movements than other types of stocks. Funds focusing their investments on certain sectors and/or smaller companies increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility. The Funds are non-diversified, as a result, changes in the market value of a single security could cause greater fluctuations in the value of Fund shares than would occur in a diversified fund. Each of the Funds invests in the securities included in, or representative of, its Index regardless of their investment merit. The Funds do not attempt to outperform their respective Index or take defensive positions in declining markets and each Index may not perform as intended. Please read each Fund’s prospectus for specific details regarding the Fund’s risk profile. QSML: The securities of small-capitalization companies generally trade in lower volumes and are subject to greater and more unpredictable price changes than larger capitalization stocks or the stock market as a whole. Small-capitalization companies may be particularly sensitive to adverse economic developments as well as changes in interest rates, government regulation, borrowing costs and earnings. The fund is new and has limited operating history. QMID: The fund invests primarily in the securities of mid-capitalization companies. As a result, the Fund's performance may be adversely affected if securities of these companies underperform securities of other capitalization ranges or the market as a whole. Securities of mid-capitalization companies are often less stable and more vulnerable to market volatility and adverse economic developments than securities of larger companies, but mid-capitalization companies may also underperform the securities of small-capitalization companies because medium capitalization companies are more mature and are subject to slower growth during economic expansion. The fund is new and has limited operating history. The funds are new and have limited operating history. Past performance is not indicative of future results.

About WisdomTree

WisdomTree is a global financial innovator, offering a well-diversified suite of exchange-traded products (ETPs), models, solutions and products leveraging blockchain-enabled technology. We empower investors and consumers to shape their future and support financial professionals to better serve their clients and grow their businesses. WisdomTree is leveraging the latest financial infrastructure to create products that provide access, transparency and an enhanced user experience. Building on our heritage of innovation, we are also developing and have launched next-generation digital products, services and structures, including digital or blockchain-enabled mutual funds and tokenized assets, as well as our blockchain-native digital wallet, WisdomTree Prime™.*

*The WisdomTree Prime digital wallet and digital asset services are made available through WisdomTree Digital Movement, Inc. (NMLS ID: 2372500), in select U.S. jurisdictions and may be limited where prohibited by law. Visit www.wisdomtreeprime.com or the WisdomTree Prime mobile app for more information. Foreside Fund Services, LLC, (FFS) is not affiliated with WisdomTree, Inc. and its subsidiaries. FFS does not provide digital wallet or digital asset services.

WisdomTree currently has approximately $99.7 billion in assets under management globally.

For more information about WisdomTree and WisdomTree Prime™, visit: https://www.wisdomtree.com.

Please visit us on X, formerly known as Twitter, at @WisdomTreeNews.

WisdomTree® is the marketing name for WisdomTree, Inc. and its subsidiaries worldwide.

¹ WisdomTree U.S. MidCap Quality Growth Index: Market-cap weighted index that consists of companies with quality and growth characteristics. The top 60% of U.S. companies by market capitalization, after the 500 largest companies have been removed, are ranked on a composite score of two fundamental factors: growth and quality, which are equally weighted.
² WisdomTree U.S. SmallCap Quality Growth Index: Market-cap weighted index that consists of companies with quality and growth characteristics. The bottom 40% of U.S. companies by market capitalization, after the 500 largest companies have been removed, are ranked on a composite score of two fundamental factors: growth and quality, which are equally weighted.
³ Large-Capitalization (Large-Cap): Used by the investment community to refer to companies with a market capitalization value of more than $10 billion. An abbreviation of the term “large market capitalization”. Calculated by multiplying the number of a company’s shares outstanding by its stock price per share.
⁴ Small-Capitalization (Small-Cap): New or relatively young companies that typically have a market capitalization between $200 million to $2 billion.
⁵ Spread: Typically refers to a difference between a measure of yield for one asset class and a measure of yield for either a different subset of that asset class or a different asset class entirely.
⁶ Quality Screen: The growth factor is determined by a company's ranking based on a 40% weight in its trailing 3-year earnings growth, a 40% weight in its trailing 3-year sales growth, and a 20% weight in its median analyst earnings growth forecast. The quality factor is determined by a company's ranking based on a 50% weight to each of its trailing 3-year average return on equity and trailing 3-year average return on assets.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240125745281/en/

Media Relations

WisdomTree, Inc.

Jessica Zaloom

+1.917.267.3735

jzaloom@wisdomtree.com / wisdomtree@fullyvested.com

Source: WisdomTree, Inc.

FAQ

What are the ticker symbols for the U.S. MidCap Quality Growth Fund and U.S. SmallCap Quality Growth Fund?

The ticker symbols for the funds are QMID and QSML respectively.

What is the expense ratio for QMID and QSML?

Both funds have an expense ratio of 0.38%.

What is the investment objective of QMID and QSML?

The funds aim to track the price and yield performance of the WisdomTree U.S. MidCap Quality Growth Index and WisdomTree U.S. SmallCap Quality Growth Index.

What is the risk associated with investing in growth stocks?

Growth stocks may be out of favor with the market and underperform value stocks or the overall equity market, and are generally more sensitive to market movements than other types of stocks.

What are the risks associated with investing in the U.S. MidCap Quality Growth Fund and U.S. SmallCap Quality Growth Fund?

The funds are non-diversified and may be out of favor with the market, resulting in greater share price volatility. Additionally, the securities of small-capitalization and mid-capitalization companies may be particularly sensitive to adverse economic developments and market volatility.

What is the historical performance of QMID and QSML?

The funds are new and have limited operating history, and past performance is not indicative of future results.