Dragon Claws
This article series aims at evaluating ETFs (exchange-traded funds) regarding past performance and portfolio metrics. Reviews with updated data are posted when necessary.
EPS strategy
WisdomTree U.S. LargeCap Fund (NYSEARCA:EPS) was formerly known as WisdomTree U.S. Earnings 500 Fund ETF (as of writing, the latter name is still used on Seeking Alpha). EPS started investing operations on 02/23/2007 and tracks the WisdomTree U.S. LargeCap Index. It has a portfolio of 499 stocks, a total expense ratio of 0.08% and a distribution yield of 1.66%. Distributions are paid quarterly.
As described by WisdomTree, the underlying index “measures the performance of earnings-generating companies within the large-capitalization segment of the U.S. Stock Market.”
The index includes the 500 largest companies ranked by market capitalization in the WisdomTree U.S. Total Market Index, and it is weighted based on earnings. Earnings are the product of market capitalization and earnings yield (the inverse of P/E ratio), so we can consider it as a value index adjusted by market capitalization. As a consequence, mega cap companies are favored over smaller companies with a better earnings yield. The index is rebalanced annually. The portfolio turnover rate in the most recent fiscal year was 102%. This article will use as a benchmark the S&P 500 index, represented by SPDR® S&P 500 ETF Trust (SPY).
EPS portfolio
EPS invests exclusively in U.S. companies and mostly in the large cap segment (about 78% of asset value). Technology is the heaviest sector (24.2%), followed by financials (17.2%) and communication services (13%). Compared to the S&P 500 (SP500), EPS overweights financials, communication services and energy. It underweights all other sectors, mostly technology and real estate.
EPS sector breakdown (Chart: author; data: WisdomTree, SSGA)
The top 10 holdings, listed in the next table with valuation ratios, represent 32% of asset value. The top three positions are between 4% and 6%, so risks related to individual companies are moderate.
Ticker | Name | Weight (%) | P/E TTM | P/E fwd | P/Sales TTM | P/Book | P/Net Free Cash Flow | Yield% |
Microsoft Corp. | 5.65% | 35.57 | 34.75 | 12.97 | 12.12 | 62.19 | 0.73 | |
JPMorgan Chase & Co. | 5.42% | 11.81 | 12.06 | 2.25 | 1.86 | 4.49 | 2.35 | |
Apple, Inc. | 4.78% | 28.42 | 27.76 | 7.41 | 38.09 | 32.57 | 0.55 | |
Alphabet, Inc. | 3.57% | 25.98 | 22.60 | 6.67 | 7.25 | 30.70 | 0.47 | |
Amazon.com, Inc. | 3.40% | 52.80 | 41.52 | 3.40 | 9.26 | 43.89 | 0 | |
Meta Platforms, Inc. | 2.68% | 27.15 | 23.42 | 8.69 | 8.30 | 25.70 | 0.42 | |
NVIDIA Corp. | 2.57% | 75.74 | 35.67 | 36.95 | 52.38 | 84.55 | 0.02 | |
Exxon Mobil Corp. | 2.42% | 14.25 | 12.55 | 1.40 | 2.26 | 27.16 | 3.27 | |
Berkshire Hathaway, Inc. | 1.77% | 11.99 | 21.57 | 2.38 | 1.54 | 28.32 | 0 | |
Bank of America Corp. | 1.55% | 13.02 | 11.73 | 1.65 | 1.14 | 24.79 | 2.55 |
Ratios: Portfolio123.
Fundamentals
EPS is cheaper than the S&P 500 index regarding the usual valuation ratios, as reported in the next table. Moreover, fundamental growth rates are superior to the benchmark (although not very far from it).
EPS | SPY | |
Price / Earnings TTM | 19.65 | 24.39 |
Price / Book | 3.34 | 4.26 |
Price / Sales | 2.13 | 2.79 |
Price / Cash Flow | 13.17 | 16.79 |
Earnings growth | 23.27% | 21.92% |
Sales growth | 9.18% | 8.79% |
Cash flow growth | 11.16% | 8.81% |
Performance
Since 03/1/2007, EPS has underperformed the S&P 500 by about 39% in total return. The gap in annualized return is 50 bps, which is hardly significant. Risk metrics (maximum drawdown and volatility) are similar to the benchmark.
Total Return | Annual Return | Drawdown | Sharpe ratio | Volatility | |
EPS | 373.57% | 9.47% | -54.43% | 0.56 | 15.95% |
SPY | 412.50% | 9.97% | -55.19% | 0.59 | 15.96% |
Data calculated with Portfolio123.
The annual sum of distributions has increased from $0.35 per share in 2013 to $0.87 in 2023. This 10-year growth rate of 148.6% is far ahead of the cumulative inflation (about 32% in the same time, based on CPI). The yield of EPS is unimpressive, but this rate is competitive in the dividend-growth arena.
Distribution history (Seeking Alpha)
EPS vs. value style
The next table compares characteristics of EPS and five large cap value ETFs:
- Vanguard Value Index Fund (VTV)
- iShares MSCI USA Value Factor ETF (VLUE)
- First Trust Large Cap Value AlphaDEX Fund ETF (FTA)
- iShares Morningstar Value ETF (ILCV)
- Invesco Large Cap Value ETF (PWV).
EPS | VTV | VLUE | FTA | ILCV | PWV | |
Inception | 2/23/2007 | 1/26/2004 | 4/16/2013 | 5/8/2007 | 6/28/2004 | 3/3/2005 |
Expense Ratio | 0.08% | 0.04% | 0.15% | 0.60% | 0.04% | 0.55% |
AUM | $856.91M | $163.46B | $7.02B | $1.19B | $915.16M | $891.11M |
Avg Daily Volume | $2.59M | $375.25M | $37.63M | $3.40M | $2.23M | $2.37M |
Holdings | 500 | 343 | 155 | 188 | 458 | 53 |
Top 10 | 33.82% | 22.82% | 33.17% | 9.78% | 20.28% | 33.72% |
Turnover | 102.00% | 10.00% | 23.00% | 80.00% | 27.00% | 104.00% |
Data: Seeking Alpha.
EPS is the best performer of this group by a significant margin over the last 10 years.
EPS vs Value ETFs, 10-year total return (Seeking Alpha)
It is also in first position in a 12-month time frame, marginally ahead of PWV.
EPS vs Value ETFs, 12-month total return (Seeking Alpha)
The predominance of market capitalization over earnings yield in the weighting methodology explains why EPS behavior is closer to the S&P 500 Index than to value funds, and why it has outperformed them.
Takeaway
WisdomTree U.S. LargeCap Fund holds about 500 large caps weighted based on earnings. EPS has better valuation and growth metrics than the S&P 500 Index, but it has slightly underperformed the benchmark since inception. Over the last 10 years, EPS has outperformed large cap value ETFs. By combining market capitalization and earnings yield in the weighting process, EPS is halfway between SPY and a value ETF.
