WisdomTree has launched a new ETF tracking the performance of large-cap US companies displaying the highest quality and growth characteristics.
The WisdomTree US Quality Growth UCITS ETF will go a step further than other indices tracking US equities such as the S&P 500 – it will take a more concentrated position in 100 US companies with the highest growth in sales and realised and expected earnings.
By honing in on this smaller pool of companies, the fund aims to filter out the more unprofitable, highly speculative, and low-quality names in the US market.
Without these extra criteria, WidomTree’s head of quantitative research and multi-asset solutions Pierre Debru said “investing in growth stocks with no filters can be a losing game over the long run”.
“High-quality growth stocks have historically been better at helping investors withstand drawdowns than a pure growth allocation without sacrificing the ability to participate in market rebounds,” he added.
“The new ETF is an alternative to growth strategies such as the Nasdaq 100, as it takes a more holistic approach to portfolio construction instead of focusing solely on the market capitalisation of constituents or their stock exchange listing.”
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This approach has led WisdomTree US Quality Growth UCITS ETF to take a more concentrated position in technology stocks than the S&P 500. Almost half (45.5%) of its holdings are in the sector, while it only makes up 27.1% of the conventional index.
It also takes an overweight position in consumer discretionary and communication businesses (at 16.5% and 13.1% respectively), while shedding exposure to areas such as healthcare, consumer staples and energy.
The fund’s specific filters may appeal to investors seeking a more specialised exposure to the US, but its highest weightings dominate the portfolio of an already highly concentrated market.
Its top 10 holdings account for over half (58.6%) of the fund, while these make up almost a third (32.2%) of the S&P 500.
Nevertheless, Alexis Marinof, head of Europe at WisdomTree, said the new ETF aims to give investors a “differentiated and added-value” alternative to conventional indices – something that could come in helpful when interest rates inevitably decline.
“We know investors are positioning portfolios to benefit from the forthcoming interest rate cuts in the US, which is expected to be a positive catalyst for growth-oriented US equities,” he explained.
“But as we’ve seen in recent years, nothing is promised in financial markets. So, by focusing on quality rather than market capitalisation, investors can benefit from a more robust approach than market cap-weighted growth funds, without sacrificing returns in up markets.”
The strategy has been available in the US since 2022, during which time it has climbed 59.5%, outpacing the S&P 500’s total return of 20.5% by 39 percentage points. This return – which is almost three times higher than the benchmark index – could indicate that its concentrated approach does work in some market conditions.
The WisdomTree US Quality Growth UCITS ETF will be available in the UK tomorrow (24 April) at a total expense ratio (TER) of 0.33%.
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