WisdomTree Investments Inc. (NASDAQ:WETF), the fifth-largest U.S. issuer of exchange traded funds, last week introduced two new ETFs designed to give investors protection in down markets: The WisdomTree Dynamic Long/Short U.S. Equity Fund (BATS: DYLS) and the WisdomTree Dynamic Bearish U.S. Equity Fund (BATS: DYB).
The WisdomTree Dynamic Long/Short U.S. Equity Fund, as its name implies, features both long and short equity positions. That new ETF's long positions are comprised of 100 large- and mid-cap companies that meet certain growth and value criteria. DYLS weights those according to their volatility traits. The new ETF's short equity positions include the largest 500 U.S. companies, weighted by market capitalization, designed to act as a market risk hedge, according to WisdomTree.
Top sector weights in DYLS include consumer discretionary and financial services, which combine for nearly a third of the new ETF's weight. Technology is the largest sector allocation in the new ETF at over 19 percent while healthcare and industrials also command double-digit allocations. Well-known long positions in DYLS include Apple Inc. (NASDAQ:AAPL), eBay Inc. (NASDAQ:EBAY) and McDonald's Corporation(NYSE:MCD) DYLS charges 0.48 percent per year, or $48 for every $10,000 invested.
Profits are a key driver of the market. So when the growth fundamentals, or profits, of the investment universe are deteriorating, the dynamic indicator would look to hedge the portfolio. Similarly, as valuations become more stretched, adding risk to the portfolio, the indicator would look to hedge as well. Over time, being able to limit or buffer losses during unfavorable markets has been critical to increasing portfolio returns while seeking to reduce risk, said WisdomTree Research Director Jeremy Schwartz in a recent note.
The The WisdomTree Dynamic Bearish U.S. Equity Fund is the member of the new ETF duo investors can use to express more overtly bearish views on equities. DYB follows the WisdomTree Dynamic Bearish U.S. Equity Index, which provides a dynamic allocation of exposure to the Long Equity Index ranging from 100% to 0% while employing a variable monthly hedge ratio ranging from 75% to 100% exposure to the Short Equity Index based on a quantitative rules-based market indicator that scores growth and value market signals. During times when the market indicator shows unattractive readings on valuation and growth characteristics, the Index can move to 100% exposure to the Long Treasury Index, (and accordingly no exposure to the Long Equity Index), according to WisdomTree.
Like DYLS, DYB charges 0.48 percent per year. The new ETF is currently comprised of long Treasury positions and short equity index positions via swaps.
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