Over a long period of time, many studies have come to a similar conclusion: Small-cap stocks, screened in some manner for reasonable valuation, have been very strong performers.
What Does Small-Cap Value Mean?
“Value” is a term that is used in different ways in the financial industry. First of all, how do you define “value”? Low price-to-earnings (P/E) ratio? Low price-to-book value ratio? A low price relative to a mix of different fundamentals? Not to mention how the allocation should be divided among different-value stocks—should the company with the most “value” get the most weight or should the biggest company by market capitalization?1
What Is WisdomTree’s SmallCap Earnings Approach?
Instead of directly placing the word “value” in the name of the Index or indicating that the concept of value is the primary focus, WisdomTree instead focuses on earnings. Within U.S. small caps, this leads to the following:
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