Friday, October 06, 2006

Proxy Investing - ETFs

Given what I believe will be phenomenal growth in ETFs over the next decade, particularly those specializing in some sort of fundamentally-based ETFs (or enhanced ETFs), would an investment in Wisdom Tree Investments (the stock) as a purveyor of fundamental ETFs be a wise proxy investment decision?

The industry probably has a huge tailwind, as ETFs generally, and fundamental ETfs in particular, begin rapidly draining money away from both mutual funds and, perhaps, to some extent, individual stocks (which themselves were often previously used as an industry proxy).

Unfortunately, there are no recent SEC filings, so by buying this pink-sheet stock, you're buying a bit of a pig in a poke. Nontheless, given the heavy hitters joing this company (Siegel, Levitt) as owners and advisors, one has to think they wouldn't want to sully their reputation on a business without a viable future. Undoubtedly, provided this stock is at a reasonable valuation now, its return will be a leveraged bet on the ETF market generally.

Value, as always however, remains the key to a decent return.

JW

The Confused Capitalist

5 comments:

Anonymous said...

great thing about ETF's is it's so easy to overlay Alpha by selling high vol. calls vs. the index

Anonymous said...

Thank you. You close with "Value, as always however, remains the key to a decent return" - so, how can we identify the value of WisdomTree without any financial statements? How does this company make money? One would think that the cost of marketing and supporting these products is significant, and the fees collected seem to be so small compared to mututal funds and other investments.

Anonymous said...

Thank you. You close with "Value, as always however, remains the key to a decent return" - so, how can we identify the value of WisdomTree without any financial statements? How does this company make money? One would think that the cost of marketing and supporting these products is significant, and the fees collected seem to be so small compared to mututal funds and other investments.

Plus, with the explosion of ETFs on the market, I see a power law distribution, where SPY and QQQQ sit up high on the curve and the wisdom tree etfs are way down below.

Too much competition, too little barrier to entry - the investment houses jump into the game so they can steer their own clients to their own ETFs.

That said, I agree that the management team is strong and impressive - but in an of itself, I don't see the value in this play.

Thanks though for a great blog, I do enjoy reading your thougts!

Jay Walker said...

Anon 2/3,

These are obvious points; it's tough to tell value without any financial statements and a key reason I pointed it out.

As far as barriers to entry goes, while that's true, I'd argue that the same exist/ed for mutual funds, but that didn't stop many in the business from making an excellent return from them.

ETFs are going to have a long tailwind which should help sector returns.

As to whether Wisdom Tree as a stock investment will prosper, who knows? I guess one thing is, is that at least with this pink-sheet stock, you can be pretty much assured there's not going to be something fishy going on with the books.

As to the PE ration or other valuation metrics: only the Great Oz knows, making an investment decision difficult (or in my case easy: I won't do it).

JW

mmrriad said...

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