New Look Refreshes Proposition for Value ETF

In discussing the state of the exchange traded funds landscape, the focus is often on inflows and new product launches. Stands to reason as those are the headline grabbers.

Related to new ETFs coming to market – more than 400 did so last year – are closures. In recent years, ETF closures ramped, but the liquidations are often outpaced by launches and closures are the sign of a maturing industry.

Something that goes overlooked by some advisors and practically all clients is that rather than closing an ETF, issuers have another option: Reconfiguring or rebranding a product. For issuers, it's a far more attractive option to throwing in the towel on a specific ETF. For advisors and clients, reconfiguring an ETF can result in a more compelling strategy.

Take the case of the WisdomTree U.S. Value Fund (WTV), which previously existed as the WisdomTree U.S. Quality Shareholder Yield Fund (QSY). To be sure, this is a NEW change. QSY changed to WTV at the start of this year.

Welcome to WTV

What's interesting about the WTV transition is that the fund is about to turn 15 years old and it has north of $100 million in assets under management. Usually, older, sizable ETFs don't get rebranded.

Plus, WTV remains devoted to the pursuit of shareholder yield – a concept that's attractive and easily conveyed to clients. At a time when income is increasingly important, shareholder yield is highly relevant because it's the combination of dividend and buyback yield and debt  reduction. To be sure, those are alluring traits in any environment and they often come with elevated valuations, but with the WTV methodology, frothy multiples can be avoided.

“While the name of the Fund has changed, its investment objective remains intact and continues to provide exposure to high-quality companies that are cheaply valued relative to their fundamental characteristics,” notes WisdomTree analyst Kara Marciscano. “WTV is currently valued at a steep discount to the Russell 1000 Value and S&P 500 indexes across almost every measure of value, including a more than 30% discount to the value benchmarks on price-to-earnings.”

WTV's forward price-to-earnings ratio is just 12.2x. That compares favorably to the readings of 16.8x and 22x on the Russell 1000 Value Index and the S&P 500. In other words, WTV is offering value at, well, value multiples, but that's not the entire story. Upon further examination, the newly adjusted fund is even more interesting.

“Just prior to the WTV rebrand, the strategy was reconstituted and rebalanced. This process identifies companies generating excess capital and returning it to shareholders, all while exhibiting superior quality characteristics, like high return on equity as well as attractive profit and cash flow margins,” adds Marciscano.

WTV Relevant Now

WTV is a relevant consideration for advisors today for multiple reasons, including accelerating dividend and buyback growth. The latter is expected to eclipse records this year and the former is coming off all-time highs in 2021. WTV is positioned to capitalize on those trends.

“By design, the rebalance process increased the aggregate shareholder yield characteristics of the Fund while maintaining key quality metrics,” concludes Marciscano. “With a shareholder yield of 7.4%, WTV is valued very attractively relative to both the Russell 1000 Value and S&P 500 indexes, both below 3%. Notably, the strategy’s price-to-earnings ratio of 12.4 times is half that of the S&P 500 Index and about 7 times cheaper than the Russell 1000 Value Index.”

Sometimes, change is arrives just for the sake of it. In the case of WTV, the new look could bear long-term fruit for clients.

Related: What's In Store for ETFs in 2022