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Is WisdomTree U.S. SmallCap ETF (EES) a Strong ETF Right Now?

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Launched on 02/23/2007, the WisdomTree U.S. SmallCap ETF (EES - Free Report) is a smart beta exchange traded fund offering broad exposure to the Style Box - Small Cap Value category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is managed by Wisdomtree, and has been able to amass over $642.04 million, which makes it one of the average sized ETFs in the Style Box - Small Cap Value. This particular fund, before fees and expenses, seeks to match the performance of the WisdomTree U.S. SmallCap Earnings Index.

The WisdomTree U.S. SmallCap Index is a fundamentally weighted index that measures the performance of earnings-generating companies within the small-capitalization segment of the U.S. Stock Market.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Annual operating expenses for EES are 0.38%, which makes it on par with most peer products in the space.

It's 12-month trailing dividend yield comes in at 1.72%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Financials sector - about 24.70% of the portfolio. Consumer Discretionary and Industrials round out the top three.

When you look at individual holdings, Mr Cooper Group Inc (COOP - Free Report) accounts for about 1% of the fund's total assets, followed by Boise Cascade Co (BCC - Free Report) and Flagstar Bancorp Inc (FBC - Free Report) .

Its top 10 holdings account for approximately 6.33% of EES's total assets under management.

Performance and Risk

The ETF has lost about -11.10% so far this year and is down about -2.68% in the last one year (as of 04/26/2022). In the past 52-week period, it has traded between $46 and $53.68.

The ETF has a beta of 1.32 and standard deviation of 31.62% for the trailing three-year period, making it a medium risk choice in the space. With about 963 holdings, it effectively diversifies company-specific risk.

Alternatives

WisdomTree U.S. SmallCap ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Russell 2000 Value ETF (IWN - Free Report) tracks Russell 2000 Value Index and the Vanguard SmallCap Value ETF (VBR - Free Report) tracks CRSP U.S. Small Cap Value Index. IShares Russell 2000 Value ETF has $13.54 billion in assets, Vanguard SmallCap Value ETF has $25.81 billion. IWN has an expense ratio of 0.24% and VBR charges 0.07%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Small Cap Value.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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