Nice ticker symbol.
WisdomTree on Thursday launched the LargeCap Growth Fund (ROI) on the NYSE Arca. ROI is usually the symbol for “return on investment.” Nice score on WisdomTree’s part.
The new ETF is designed to track the WisdomTree LargeCap Growth Index. This fundamentally-weighted index measures the performance of approximately 300 domestic large-cap growth companies. Each company’s weighting is set annually and based on the earnings generated during the prior four fiscal quarters. The ETF has an expense ratio of 0.38%.
WisdomTree, the market leader in fundamentally-weighted indexes, is best known for its family of ETFs based on dividends-weighted indexes. This isn’t the firm’s first earnings-based ETF, it launched a few others earlier in the year. But it is a radical departure for WisdomTree. It’s the first growth-oriented fund in this value-oriented firm. Not only is this WisdomTree’s first fund focused on growth stocks, but it’s the first growth-oriented ETF among all the Fundamentalists, those fund families with indexes based on fundamental metrics.
One big disadvantage of dividend-based ETFs is that they ignore strong companies that refuse to pay out dividends, such as technology companies. Earnings-based indexes, and especially growth funds, have the potential to expand WisdomTree’s customer base by offering an ETF with some of the fastest growing companies in the world, such as Google.
Jeremy Siegel, famed professor of the Wharton Business School and a senior advisor to WisdomTree, said in a written statement, “I devoted the first chapter of my book, The Future for Investors, to what I call the ‘Growth Trap,’ the long-standing problem of investors paying too much for the future prospects of growth companies.”
One assumes the new ETF digs itself out of the “Growth Trap”, but WisdomTree didn’t elaborate. The company did say, “growth’s historic underperformance may have more to do with how the major growth indexes are constructed, than with growth stocks themselves.”