By Tripp Zimmerman
WisdomTree has enhanced two Indexes to allow investors to track important investment themes tied to the policies of the new administration. For a president who wants to “buy American” and “rebuild America,” there might be an opportunity for companies that generate a majority of their revenue from within the U.S. to see sales and earnings increase. Policy focused on lowering taxes could also help companies that generate a majority of their revenue in the U.S. because they typically have higher effective tax rates than companies with profits overseas at lower tax rates.
Although companies that generate a majority of their revenue from outside the U.S. may not benefit as much from a domestic tax cut, they could potentially benefit from a repatriation tax reform or holiday, allowing them to bring cash back from abroad at a lower tax rate. With the potential for excess cash on hand, these companies may be in a good position to increase their dividends or buy back their stock, both positive long-term impacts on equity performance.
Previously named the WisdomTree Strong Dollar U.S. Equity Index, it measured the performance of U.S.-based companies that derive more than 80% of their revenue from within United States. The Index was designed with a goal of minimizing exposure to companies with significant revenue from exports that are vulnerable to a strengthening U.S. dollar. While the weighting process was complex, the most important factor was stock selection and the screen for revenue from within the U.S.
Constituents in the new Index have the same revenue screens but are now weighted based on a modified Earnings Stream. WisdomTree created a set of earnings-weighted Indexes more than a decade ago, and we believe strongly in the long-term benefits of tilting more weight toward stocks with lower price-to-earnings (P/E) ratios. We are very proud of the live performance results of those Indexes. At its core, the…