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Asset Class Weekly: Preferred Stock Collateral Damage

Summary The preferred stock market has come to be seen by many investors as a refuge in post financial crisis markets. But for those allocated to the preferred stock space, now is not the time for complacency. Preferred stocks have not been without their own past periods of extreme downside volatility. And the asset class resides worryingly close to the current wildfires now blazing in the high-yield bond market. The preferred stock market has come to be seen by many investors as a refuge in post financial crisis markets. Price performance has been notably consistent and income has been relatively generous at a time when those living on fixed incomes are starving for yield. And unlike other high-yielding markets such as high-yield bonds (NYSEARCA: HYG ) and master limited partnerships (NYSEARCA: MLPI ), it has not fallen victim in recent years to sudden bouts of unsettling downside volatility. But, for those allocated to the preferred stock space, now is not the time for complacency. Preferred stocks have not been without their own past periods of extreme downside volatility. And the asset class resides worryingly close to the current wildfires now blazing in the high-yield bond market. Preferred Stocks: A Lot To Like Up until recently, I had been meaningfully allocated to preferred stocks for some time. The reasoning for this maximum strategy allocation to the asset class was driven by the fact that there is a lot to like about the preferred stock space. First, preferred stocks were a more fairly valued option in an otherwise richly-valued high-income universe. Preferred stock yield spreads relative to U.S. Treasuries have been fairly consistent throughout the post-crisis period. According to the iShares S&P Preferred Stock Index (NYSEARCA: PFF ) relative to a benchmark 10-year Treasury yield, the current spread is at 3.7%, which is in the middle of the post-crisis range and well above the levels seen prior to the financial crisis in 2007 when this spread had dipped below 2%. (click to enlarge) And on an absolute basis, yields have remained relatively attractive at above 6% after cresting as high as 7% in late 2014. And this absolute yield is consistent with what we have seen from the category over the past decade. (click to enlarge) Adding further to the appeal of the preferred stock asset class has been the relative quality advantage enjoyed by preferred stocks relative to other higher-yielding alternatives. For although owning preferred stocks in their various structures rank lower on the capital structure than the offerings in the high-yield bond space, investors are standing on the rungs of higher-quality companies that boast credit ratings that are “A” or better in many cases. Moreover, a vast majority of the preferred stock universe at more than 80% is made up of companies in the financial sector. While this dedicated sector exposure proved highly problematic during the financial crisis (more on this point later), in the current environment, it actually represents an advantage. For example, more than half of the preferred stock universe is made up of issuance from the systemically important financial institutions such as Bank of America (NYSE: BAC ), Wells Fargo (NYSE: WFC ), U.S. Bancorp (NYSE: USB ), JPMorgan Chase (NYSE: JPM ) and Goldman Sachs (NYSE: GS ) among others. And the one thing that has been relentlessly demonstrated by monetary policymakers during the post-crisis period is that the health of these institutions will be guarded and protected by policymakers at all costs no matter what new operational missteps are made in the future. So, for all of these reasons, the preferred stock space has been an ideal destination for capital during the post crisis period. And the consistently strong price performance from the asset class has been rewarding in recent years. (click to enlarge) But market conditions have been changing in 2015. And the risks are now rising for what has been a placid destination in recent years. A History Not Without Trauma While the last few years have been a blissful period for preferred stock investors, this has not always been the case. The asset class has endured its own periods of extreme trauma throughout history. (click to enlarge) For example, during the financial crisis, while the stock market as measured by the S&P 500 Index (NYSEARCA: SPY ) fell by more than -50% from peak to trough, the preferred stock universe performed measurably worse in falling by nearly -65% over the duration of the crisis. Of course, much of this downside was driven by the heavy weighting to financials in the asset class. And while this characteristic may imply a degree of downside protection today, if we do find ourselves in the midst of another global financial accident, the category would likely suffer disproportionately once again under such a scenario. The Threat Of Collateral Damage Today The larger risk facing the preferred stock universe today is the threat of collateral damage spilling over from the high-yield bond space. Why exactly would challenges in the lower credit quality segment of the high-yield bond space impact investment-grade-rated preferred stocks largely concentrated in financials? Because many of the money managers that operate in the high-yield bond space are also the same investors actively involved in owning other high-yielding investments such as senior bank loans (NYSEARCA: BKLN ), convertible bonds (NYSEARCA: CWB ) and preferred stocks. Why would this matter? Because, if you are a money manager that is in a cash crunch and the high-yield bonds that you own have turned illiquid, you will likely turn to sell the other higher-quality assets that are still liquid in order to raise cash. This is where the contagion effects of illiquidity in a certain segment of financial markets starts to spread. For just like the high-yield bond space, the preferred stock universe is not the most liquid category in financial markets despite the fact that these securities trade on an exchange. While some of the larger preferred stocks trade with reasonable volume under normal market conditions, it is nothing like what is seen in the common stock market, as bid-ask spreads are often wide on any given trading day. And a fair number of preferred stocks trade with volumes in the thousands to hundreds on any given day with some periodically going untraded on any given day. As a result, if liquidation pressures were to spill over into the preferred stock market in earnest, we could quickly see staggeringly dramatic intraday price movements that can extend for days, weeks or even months depending on the degree of market stress. For the nimble investor, such dramatic dislocations can present incredibly good buying opportunities to snatch up high-quality preferred securities at dramatic discounts that eventually provide robust capital gains with attractive yields paid along the way. But, for many retirees that are not interested in trading the wild swings of the preferred stock market but instead simply want to clip their coupons and sleep well at night, such wild price deviations can prove devastatingly traumatic, particularly if they are unaware that they may occur at any given point in time and be accompanied by the periodic dividend suspension and/or bankruptcy like those experienced by Lehman Brothers’ preferred stock investors back in 2008. Where Do We Stand Today? To date, the preferred stock universe as a whole continues to hold up fairly well. The asset class as measured by the iShares S&P Preferred Stock Index reached a dividend adjusted all-time high as recently as the end of November. And while the high-0yield bond market has fallen precipitously since the start of December with a more than -6% decline, the preferred stock market is lower by only a fraction at just over -2%. In short, all remains reasonably well. But not entirely so, as several cracks warrant attention. First, preferred stocks started the week on a troubling note. Preferred stocks opened lower and faded throughout the trading day, effectively ending on their lows. This stood in sharp contrast to high-yield bonds that found their footing around 11:30AM today and traded sideways for the remainder of the day. Monday was only one trading day, but investors are well served to monitor this recent development for any continuation to the downside, as this would suggest that the problem in high yield is starting to spread. (click to enlarge) Second, standing back and taking a broader view on preferred stocks, not only is the category now precariously perched on its ultra long-term 400-day moving average, but also as evidenced by its price chart dating back to the summer, it is prone to flash crash pressures like experienced on the wild trading day of August 24. (click to enlarge) Lastly, while the preferred stock universe in general continues to hold up, specific segments of the space are breaking down. During the financial crisis, it was financial preferreds that were obliterated while non-financial preferreds (NYSEARCA: PFXF ) largely held their own. This time around, non-financial preferred stocks from industries such as telecommunications, agriculture, healthcare services, oil & gas, mining and pipelines have deviated from the path of the broader preferred stock universe and have instead latched on to the high-yield bond path lower. (click to enlarge) Thus, while the preferred stock market continues to hold up, it is warranting increasingly close attention going forward, as risk levels are rising both around and within the asset class. Recommendations Much like the high-yield bond and master limited partnership investors that have now gone before, preferred stock investors would be well served to have a heightened level of risk awareness going forward. It may very well be that preferred stocks emerge unscathed from this latest episode of capital market stress. Then again, they may eventually fall victim to the spillover effects that are now dogging related asset classes. Does any of this suggest that the asset class will suddenly head straight to the downside tomorrow? Not at all, for it may take a fair amount of time before the preferred stocks succumb to any downside pressure if at all. And even if the category begins to buckle, it is likely to do so with fits and starts over a more extended period of time. But the fact remains that risk environment surrounding preferred stocks has been elevated from where it has been over the last several years. If nothing else, a heightened degree of price volatility should be expected going forward. Disclosure : This article is for information purposes only. There are risks involved with investing including loss of principal. Gerring Capital Partners makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made. There is no guarantee that the goals of the strategies discussed by Gerring Capital Partners will be met.

Invest With Paul Singer

Summary Fondul Proprietatea is one the largest closed-end funds in the world. The fund currently trades at 29% discount to its NAV. The largest shareholder Elliott Associates run by Paul Singer has been recently increasing its position to 21.6%. Bill Gates entered the play with a 1% stake. This update concentrates on the highlights from the fund’s investor day. This is a pure, activist-driven restructuring play. Investment summary: Stable 6.3% non-taxable “dividend” yield. The fund is buying back up to 25% of the daily volumes of its share trading. The fund is motivated and pushed by activists to reduce the 29% discount. Portfolio restructuring should allow the fund to increase the payout to shareholders in the near future. Introduction to Fondul Proprietatea Fondul Proprietatea (LSE:0OKS) (BUH:FP) was created by the Romanian state to reimburse Romanian citizens for the assets that were taken from them by the communist regime. Since 2010, the fund is managed by Franklin Templeton, and since 2011, the fund is listed on Bucharest Stock Exchange, and its GDRs trade on the London Stock Exchange. The fund has a total NAV of USD2.9 billion, the market capitalisation of USD2.1 billion and trades at a 29% discount to the NAV. Source: Fondul Proprietatea Investor Presentation, December 2015 The main reason for the high NAV discount lies in the high proportion of the unlisted portfolio, which currently represents 55% of the total assets. The fund is 85% invested in Romanian energy companies. Source: Fondul Proprietatea Investor Presentation, December 2015 The fund is well managed by Franklin Templeton . The fund manager is working hard to narrow the NAV discount. Over the last four years, the fund has paid out over USD1.6 billion to its shareholders in the form of dividends and buybacks, which is quite significant relative to its size of USD2.9 billion. Despite this significant payout, the fund’s NAV remained stable. Source: Fondul Proprietatea Investor Presentation, December 2015 The fund’s investment strategy is simple: No new investments (except buying back its own shares, currently at a 29% discount), restructure the current portfolio to narrow the NAV discount through listing or disposal of unlisted securities, and distribute profits to shareholders. Motivation to Templeton Elliott recently pushed through a new fee structure that is quite an unusual for closed-end funds; the management fee is based on market capitalisation of the fund, and not its NAV. An additional fee is due for each day – the NAV discount is below 15%. An additional fee is paid on cash distributions to the shareholders. Why the fund will make you money This is a textbook case of shareholder activism that creates value for all shareholders. Paul Singer has a team of lawyers in Romania who put pressure on Templeton to deliver. There are major value drivers ahead: Portfolio restructuring The reason for the high NAV discount lies mainly in its high 55% proportion of unlisted equities in the fund’s portfolio. Source: Fondul Proprietatea Investor Presentation, December 2015 The largest unlisted position is the stake in Hidroelectrica , which accounts for 34% of the unlisted portfolio. In 2014, Hidroelectrica was the most profitable Romanian company with an EBITDA margin of 65%. The preliminary results in the first five months indicate even better performance for 2015. The government plans to IPO Hidroelectrica in late 2016. Morgan Stanley has been appointed for the lead manager role. The remainder of the unlisted securities represents the main stakes in local electricity distribution companies. Most of them already have foreign majority owners. Fondul has retained the investment banks to advise on the sale of the stakes. The most advanced are discussions on the sale of four electricity distribution companies to local Electrica . The companies currently represent approximately 12% of the unlisted portfolio. The fund manager in the conference stated that “the agreement on the sale is very, very close”. The market rumor is that the deal has been already agreed and is just awaiting the approval of Electrica’s newly appointed board of directors. Negotiations with Enel ( OTC:ELPSY ) on the sale of other distribution subsidiaries, which account for 13.6% of the NAV, have been restarted very recently too. If only these two transactions get executed in 2016, the unlisted portfolio would decrease from the current 55% to 30%. Active buybacks The fund is currently buying back 25% of its daily volumes. In addition, over the last two years, it has done an annual tender offer for its shares, in which every shareholder could sell 8% of their Fondul shares at around 20% premium to the market price. Each participating shareholder collected an additional 2% income through this transaction. At the conference, the fund manager stated that the fund is considering another tender offer at an appropriate time. It has been rumored, once the sale of Electrica’s distribution companies is completed, that another tender offer will be announced. High dividend yield The fund offers a dividend yield of 6.3%. The dividend is structured as a return of capital (reduction of the nominal share value), which is tax free in many jurisdictions. The fund has already called a shareholder meeting for January to approve a 0.05 RON distribution for 2016. Romanian economy is strong The fund owns mainly electricity production and distribution companies. Energy companies are proxy to the Romanian economy. Romania has been one of the best-performing EU countries which is expected to grow at 2.8% in 2015 and 3.3% in 2016. In 2014, the good macro situation was reflected on the performance of the companies in Fondul’s portfolio, causing it to report the highest dividend income ever. The strong economic performance in 2015 is reflected in the fund’s performance. Despite the decrease in energy prices, the top portfolio holdings reported a 50% increase in profitability relative to the previous year. Source: Fondul Proprietatea Investor Presentation, December 2015 Fondul Proprietatea is “the cheapest fund in the world”, said Mark Mobius , executive chairman of Templeton Emerging Markets Group, in a press conference in Bucharest, after the GSM on October 29. The investor conference introduced a list of concrete milestones that should allow investors to capitalise on the opportunity. Conclusion The investor conference brought only good news for Fondul’s investors. The most important one was the confirmation that the completion of the disposal of Electrica’s distribution companies is imminent. When completed, investors should look forward to another tender offer for Fondul’s shares at a premium to the market price. The tenders always drove Fondul’s share prices up significantly . It would be quite surprising if the same would not happen again.

WisdomTree LargeCap Funds: Indices Set Them Apart

Summary This is the second in my series of articles examining the field of large-cap ETFs. WisdomTree Investments’ ETFs are distinguished by their proprietary indices which are nuanced to fit specific aims. I describe the general nature of WisdomTree’s four large-cap ETFs, providing detailed information about the performance of these funds. WisdomTree Investments, Inc. (NASDAQ: WETF ) issues four large-cap ETFs under the WisdomTree Trust header: WisdomTree LargeCap Dividend Fund (NYSEARCA: DLN ) 1 WisdomTree ex-Financials Fund (NYSEARCA: DTN ) 2 WisdomTree Earnings 500 Fund (NYSEARCA: EPS ) 3 WisdomTree LargeCap Value Fund (NYSEARCA: EZY ) 4 What sets these funds apart from other large-cap ETFs are their indices; WisdomTree manages its own, proprietary, indices, assuring the funds of guidelines relevant to their purposes and hopefully structured to maximize the funds’ values. The ETFs All four funds require holdings to have a minimum of $100 million in market capitalization. 5 DLN and DTN take their holdings from the 300 largest companies in the WisdomTree Dividend Index that have paid dividends for the 12 months prior to screening; the two funds also require a $100,000 daily trading volume (average for the three months preceding screening). 6 EPS and EZY are drawn from larger universes of large-cap companies ( 500 and 1 , 000 , respectively), and both require a $200,000 daily trading average for the six months – and a price-to-earnings ratio of at least 2 – preceding screening. Eligibility for the index is determined by earnings over the four quarters preceding screening. The funds differ in two important respects: 1) specific eligibility criteria per index; 2) weighting. One thing I like very much about these funds is that their eligibility criteria are precise, even if I do not always find the criteria to be what I would like to see, but that’s my issue. The weighting systems speak directly to the focus of each fund – they do not simply go to the “default” cap-weighted system or to some other quick and easy but essentially meaningless measure. I will describe the general nature of the weighting systems as I describe each fund. 7 The average market cap in this fund is $49.5 billion, and Apple Inc. (NASDAQ: AAPL ) is the most-weighted holding in the fund. The holdings are weighted according to the company’s projected dividends for the coming year, with weighting determined by dividing a holding’s dividend by the aggregate dividends paid by all holdings – the company that pays the most cash gets the greater weight. DLN ‘s yield of 2.76% does exceed the average yield for the S&P 500 , but there should be no illusion that this is a fund that pays large dividends; all the same, just shy of $2.00 per share is very nice, and it is likely to be a steady (and steadily growing ) dividend. Expenses reported in the most recent Annual Report were a little higher than the expense ratio would indicate, and this may account for the somewhat low distribution ratio. During the most recent fiscal year the fund’s turnover rate was 12% of its average portfolio value; the larger a fund’s turnover rate, the more expenses the fund encounters. 8 DTN ‘s expense efficiency ratio (EER) of 77.40% tells a story here: the fund overran its expense ratio due to a very large turnover rate of 32% of the average value of its portfolio. 9 Nevertheless, DTN paid out a whopping yield of 3.49% ($2.45 per share). The eligibility criteria for DTN are the same as for DLN , except that DTN takes its holdings from the top-ten dividend-yielding companies in each sector except the financials. It strikes me as more effective to focus on yield rather than on cash dividends paid, as DLN does. Weighting is determined by dividing each holding’s yield by the sum of the yields of all holdings in the portfolio. This is a clever scheme, as the fund’s bias is towards those companies paying the highest yield – no doubt a substantial factor in supporting DTN ‘s excellent yield. DTN also has holdings in DLN and the WisdomTree MidCap Dividend Fund (NYSEARCA: DON ). 10 The EPS portfolio is comprised of large-cap companies chosen on the basis of their earnings ; to qualify, a company must have “generated positive cumulative earnings over their most recent four … quarters.” 11 The companies are among the 500 largest companies in the U.S., as determined by market cap. 12 Companies in the index are weighted according to their earnings in proportion to the aggregate earnings of all companies included in the portfolio. Earnings are computed using Standard & Poor’s -developed Core Earnings , which includes expenses, incomes and activities reflecting the profitability of a company’s ongoing operations. 13 EPS puts up rather nice figures: both its distribution ratio and expense efficiency rating are greater than 100%, indicating that it is minimizing its expenses and maximizing the distribution of net income. 14 Dividends, however, are a secondary concern here, as the fund is designed to hold companies that are most likely to maintain solid earnings and growth . These companies are (presumably) also likely to experience smaller losses during economic downturn. Besides the criteria mentioned at the beginning of this section, EZY holdings’ earnings per share, book value per share and sales per share must be positive . WisdomTree Investments creates a ” value score ” for each company based on EPS , BVS , sales-to-share and one-year change in stock price ; of the 1,000 largest-capped companies those with scores in the top 30% were selected for the index. 15 Weighting is based on earnings, which are computed on the basis of the companies’ adjusted net income. This is the smallest of the four large-cap WisdomTree funds and – after more than eight years on the market – it does not seem to be quite as virile as its brethren. Average daily volume is only $155K, just less than one-fifth the volume of next-in-line EPS. EZY’s holdings are not the sort to inspire a lot of confidence. A full 35% are in consumer goods, the bulk of that (22%) being consumer-discretionary industries. The following chart shows the breakdown of EZY’s portfolio: (click to enlarge) Comparative Performances The following chart shows the performances of the WisdomTree funds since their inceptions: (click to enlarge) Performance for the four funds since inception has been on the modest side, particularly if compared to the Guggenheim funds I examined in my last article. 16 In particular, the Guggenheim Russell Top 50 ETF (NYSEARCA: XLG ) had the lowest performance over this period of 55.77% – about 1100bps more than the highest-performing WisdomTree fund, DLN . The funds’ post-recession performance has been somewhat more impressive, but only marginally: (click to enlarge) While performance over the past five years has been better for these funds, the best two ( EPS and EZY ) only marginally outperform the worse of the five Guggenheims. 17 The Recession In the Guggenheim discussion I found it interesting to look at how those funds performed through the recession of 2007-2009. As I looked at the data for the WisdomTree funds, I began thinking more about the significance of a fund’s performance during the recession (and, as I discuss below, during the correction of 2015). I am formulating some thoughts about an ETF’s recession data and what it might say about the make-up of a fund; I will have more to say about this in the near future, as I collect more data. In the meantime, the following chart gives the specifics for the WisdomTree funds from 2007 through 2013: (click to enlarge) This chart traces the performance of the funds from their highest pre-recession point to their lowest recession point and then tracks how long it took each fund to reach or exceed the pre-recession high. It took two years or less for prices to collapse, but more than four years to recover. 18 Looking at the data above, it would seem that the funds based primarily on earnings and valuation seem to do a bit better than the funds focused on dividends . It will be interesting to see if this is a generalizable observation as the series continues. A curious note: EZY hit its recession low on November 20, 2008 – almost five months before the day the market as a whole bottomed. This drop seems to have been a “flash crash” of sorts, as EZY rose back up the next day, and then followed the rest of the market to the March 9 lows. It just happened that EZY ‘s November 20 low was lower than that of March 9. The WisdomTree funds compare fairly well with the S&P 500 during this period. The S&P dropped from a high of 1565.15 (October 9, 2007) to a low of 676.83 on March 9, 2009 – a drop of – 57.76% , just slightly less than the average drop for the WisdomTree funds. The 2015 “Correction” As with the 2007 – 2009 recession, the “correction” experienced in late summer, 2015, provides an opportunity to examine the nature of an ETF’s structure: (click to enlarge) There is less to go on here than was available with the recession, primarily because there has not been enough time to fully recover from the drop on August 25. However, some of the data does seem to correlate with data from the recession, with regard to the length of time from pre-correction high to correction low. During the recession, EPS suffered the least losses of the set, DLN was second, EZY third, and DTN lost the most value, at -65.11% . By August 25 (or, for EPS , September 29) EPS saw a decrease of nearly -13%, DLN was down -13.92% and DTN again dropped the most value – this time with -15.45%; the only change was with EZY , which dropped by only 10.38%. It is quite possible that, since EZY ‘s portfolio consisted of companies that presumably were experiencing suppressed valuations , that fund was less damaged by a market turn that would, in principle, have been motivated by (perceived) excess valuation. Compound Annual Growth Rate I am beginning to wonder if each group of large-cap funds will have in it a “sleeper” – a fund that seems unimpressive on the face of things, but which ends up doing quite well by itself. The following chart shows the total returns for each of the funds since inception and over the past five years: 19 (click to enlarge) Only one of the WisdomTree funds has performed consistently since inception – DLN . Since first being issued, DLN has returned 87.86% – perhaps not an “incredible” amount, but not bad. Over the past five years, its total return has been essentially the same – 88.36% . No matter whether one has held shares since inception, nine years ago, or only for the past five years, one has received 88% return on one’s investment. DTN has fared the worst, although “worst” is relative, here – DTN has offered the lowest return of the four funds over the past five years. Since inception, the fund has returned more than 102% , but over the past five years has returned 84.56% . EPS has returned only 70.13% since inception, but had an investor purchased shares five years ago, they would have seen a total return of 88.25% on their investment. With the recession behind it, this fund has started to come into its own. If any of the WisdomTree large-cap ETFs qualifies as a sleeper , however, it is EZY . Since inception, this fund has returned only 53.55% – I think that qualifies as fairly low. However, over the past five years, EZY has returned nearly 90% over its initial value in December, 2010. The following graph shows the CAGRs for the four funds over the two periods being considered: (click to enlarge) All things considered, these four funds have been fairly indistinct over the past five years. Assessment While EZY looks fairly intriguing when considered from the five-year perspective, when all is said and done, DTN pulls clearly ahead of the pack, with DLN and EPS not too far behind, in that order. EZY does not score well in many of my criteria, and ends up quite a distance in the back. If I were looking for dividend income , DTN would be high on my list (of the funds discussed here); if growth were the aim, I believe EPS would have to get the nod. All things considered, however, I would likely turn to the Guggenheim funds before I would choose one of the WisdomTree funds – at least, as it stands for now. Disclaimers This article is for informational use only. It is not intended as a recommendation or inducement to purchase or sell any financial instrument issued by or pertaining to any company or fund mentioned or described herein. All data contained herein is accurate to the best of my ability to ascertain, and is drawn from the Company’s Prospectus, Statement of Additional Information, and fact sheets. All tables, charts and graphs are produced by me using data acquired from pertinent documents; historical price data from Yahoo! Finance . Data from any other sources (if used) is cited as such. All opinions contained herein are mine unless otherwise indicated. The opinions of others that may be included are identified as such and do not necessarily reflect my own views. Before investing, readers are reminded that they are responsible for performing their own due diligence; they are also reminded that it is possible to lose part or all of their invested money. Please invest carefully. ——————————- 1 DLN homepage. 2 DTN homepage. 3 EPS homepage. 4 EZY homepage. 5 WisdomTree Trust Prospectu s , August 1, 2015. The $100 million figure is apparently generalized to take into account all of WisdomTree’s funds. In general, the large-cap funds seem to have holdings with capitalization of more than $1.6 billion each. 6 Prospectus , pp. 10 & 14. 7 The Prospectus for the funds goes into great detail in explaining how the weighting process is executed. 8 WisdomTree Trust Annual Report , March 31, 2015. Distribution ratio compares the actual distributions made to those that would be projected on the basis of net income as reported in the Annual Report. Some deviation may be expected, since my figures reflect yield ttm, which may extend beyond the period covered by the Annual Report. 9 See Prospectus (5, above), p. 10. 10 However, holdings in DLN and DON are small, at 0.03% each of DTN ‘s NAV. 11 Prospectus , p. 38 12 According to the WisdomTree Earnings Index . Prospectus , p. 38. 13 Prospectus , p. 39. 14 I calculate the “expense efficiency rating” by dividing actual expenses paid into the product of the fund’s NAV and its expense ratio. “Distribution ratio” is determined by dividing the actual dividends paid by net income per share. If a manager is keeping expenses down, and making large distributions, both figures represent results exceeding expectations. Any figure over 100% should be considered very favorable. 15 Prospectus , p. 50. 16 ” Changes Coming For Guggenheim Large-Cap ETFs .” Coincidentally, a chart for the Guggenheim funds is shown there covering essentially the same period as the one above – 2006 – present. 17 A five-year performance chart was not presented in the Guggenheim article, but has been made available here . 18 I can see why an investor might find it hard to hold onto stocks when going into a recession, since the recovery seems to be protracted (and, according to then-Treasury Secretary Tim Geithner, the recovery from this last recession was quicker than usual). Cutting one’s losses early, then re-investing once the bottom is neared, may seem to be an effective way to avoid extended losses. But the devil’s in the details: when is it “official” that the economy is entering a recession, and when has the economy bottomed out? I don’t think there are any hard and fast answers to either of those questions. 19 Share prices reflected in the graph have been adjusted to reflect dividend payments.