Navigating Market Volatility: Market Insights and Portfolio Strategies with Jeff Weniger

[00:00:24] Doug Heikkinen: So let's start big. Can you provide an overview of the current U.S. equity market landscape and key macroeconomic factors influencing it as we progress through 2025?

[00:00:35] Jeff Weniger: We're going to go big. Okay. Well, the market is trading almost exclusively off of various Trump declarations at any given time.

So that's going to be thematic for the rest of the year. Right. I think one of the key questions is whether or not some of the inflation risks that are put forth come to fruition. I think it's a great unknown. I mean, you could see it in the action from the last week or so where, we started off it looked like we had 25 percent tariffs on both Canada and Mexico. And then within a day or so, not even a full day,

it was well, this is off. It's almost like a debt ceiling situation where, it's not like it's over with those countries. It's a 30 day put off where we'll readdress this in March and maybe put the tariffs back on Mexico. So there's a lot of comings and goings on those fronts.

And then meanwhile, as if the market wasn't giving us enough excitement just from trying to figure out where that's all headed, we got the big deep seek drop on us. So there's these few big movers. You can see it in the tape of late. Some serious weakness over here in five of the mag seven, to the exclusion of Meta and Amazon, which continue to make new 52 week highs. But generalized weakness in the other five and it hit Alphabet here. You miss revenue by ever so slight amounts and they're going to punish your stock. That's late bull market type stuff.

[00:01:59] Doug Heikkinen: Yeah, and in the midst of all this volatility, WisdomTree emphasizes a combination of value and growth strategies.

So how does this approach help investors navigate the volatility and contribute to a well diversified portfolio?

[00:02:13] Jeff Weniger: It's one of those things where it depends on which advisor you're talking to. Some advisors are pounding the table for growth and some are pounding the table for value. I mean, if you look, just continuing on with some of those concepts, NVIDIA down 17 percent one session a couple of weeks ago, I don't know if it's going higher or lower.

And I think a lot of people are in the same camp. You don't know, if Broadcom is going to go higher or lower. And what kind of exposures do you end up wanting? And you could combine a value mandate and a growth mandate and see if you like the sub factors. I mean, you think about how WidsomTree ended up creating a business, at this point now pushing 20 years ago, by the way. It was to get these exposures to these various concepts that you would hypothesize would be accretive to performance as time passes. Dividend screens on the value side, buyback screens on the value side, earnings growth, quality type screens on the growth side, and maybe you can smash them together and put it against the S&P 500.

That has been our rubric here for some time. Try to find a good value fund and a good growth fund and put them together, rather than trying to say, I really like value here. I really like growth here. It's a tough game.

[00:03:26] Doug Heikkinen: It is a tough game, value and growth. So WidsomTree's, US Value fund, ticker symbol, WTV and the US Quality Growth fund, ticker symbol, QGRW.

Let's get into the objectives and investment philosophies behind each of these.

[00:03:41] Jeff Weniger: Sure. Sure. And especially putting them together too, because if you think about, let's start with the growth side. You got an ETF house, you're gonna put together a growth index or a growth mandate. I mean, just think about operating a business, an ETF business.

Well, when you start screening for return on equity in inside US markets, and then you're combining it with things like sales growth, EBITDA growth, past tense and future tense, what you will oftentimes end up with is a situation where you have a lot of tech, a lot of communication services. and you will be up in mega cap growth.

It just picks up a lot of that stuff. I mean, if you look at the mag seven exposures in QGRW it's something like 51%. And so that's one basket. But some people said, I don't want 51 percent Mag 7. Some do some don't. And you're over there in mega cap growth. Well, you can go ahead and say, okay, well, let me find something that's skewing down inside, large cap over on the value side.

And that would be WTV doing that where it's doing the buyback screens and the dividend screens, and it ends up excluding a lot of that stuff. And so now what you can do is we have a situation where, so much of this market has become top heavy, you can combine those two to create a true large cap. Not mega cap, not mid cap, but large, which is kind of what somebody is looking to do with an S&P 500 or Russell 1000 type benchmark.

And then you're over in blend. Because with QGRW, which is, earning screens and quality screens, you get all this tech and communication services. And then with the buyback screens over WTV, you're getting stuff like energy and financials. You smash those two together and you can put it up against a Russell one.

And we've had a lot of success with that. Certainly since QGRW launched, it's been around for a couple of years. But WTV, over on the value side, that one's been around since before the global financial crisis and it's been a killer for us It's been absolutely wonderful. It appears that the the Ken French concepts on buybacks, on avoiding shareholder dilution, all that stuff from the 60s 70s 80s.

It's been working. I think we're pushing 18 years on WTV. And it makes common sense, too. So I think maybe it's as simple as that. It's common sensical.

[00:06:07] Doug Heikkinen: Ken French continues to be a very, very smart guy. What are you finding are the primary factors driving the performance of WTV and QGRW in this environment?

Can you tell?

[00:06:19] Jeff Weniger: Yeah, yeah. In this environment, you know, I can always extrapolate when a, a pod host says in this environment, so open ended. So I'm going to assume that you mean like since Trump came in, maybe, maybe that's in this environment and,

[00:06:33] Doug Heikkinen: I guess we have to talk about that. Yeah.

[00:06:36] Jeff Weniger: So, I mean, so maybe last 90 days or so, something like that, since it looked like Trump was going to be victorious and then in the last few weeks since he has taken office.

I mean, there's been generalized strength over in financials on the M&A revival theme for 25. We're on that theme. We believe up and down the spectrum, large, mid and small from mega banks to regional banks that we do have a game on situation there. I think there's going to be a lot of consolidation in the US banking sector during this administration. So that's been something that has been helpful for WTV. Because when you're running buyback screen like that, it gives you the banks. Also, we have the question mark on drill, baby drill. Theoretically, if Besson's 333 plan of which 1 of those 3s is 3 million more barrels a day,

that would theoretically send the WTI price lower, and it would be bad for energy, but energy has been holding up pretty nicely here, especially with the Mag 7, like I said, five of those seven kind of laying an egg of late. But if you do look at the 90 day window or 120 day window, whatever you want to do on this one, tech and communication services have been doing just fine.

I imagine that at least part of this equation is the changes over at the FTC, that there'd be an easier game here on tech regulation. Right now, Google, which is in the headlines as we speak, there is that big question mark as to whether or not that company will be broken up, or at least the prospect of such.

So, these are some of the things that are overhanging, and maybe the Trump administration won't be so quick to do that type of thing. It's kind of an interesting situation because we do have this fliparoo in some of these tech guys with respect to their allegiances in the last few years.

I mean, Zuckerberg's buying the house in DC. Elon of course is affiliated with the Trump administration at this point. So it's, it's kind of a bizarre, different world that we're in. You combine these two mandates together and, well, they've both been beating the S&P since, since a couple of things.

One, you could, you could take it back to, and this is really where it comes to, where is the starting point of where the market gets long Trump? Do you take it back to June 27th with the Trump versus Biden debate? Do you take it back to around the first week of October where Trump's odds on the websites like PredictIt, where it first crossed Kamala Harris.

Do you take it to the first Fed rate cut? Right? Maybe we're talking about Trump. Maybe it's Jay Powell. Maybe it's all about Jay Powell. So you go back to September 18th. Is that your starting point to try to figure out what this market is rewarding?

We have a lot of people, but we've been kind of talking about doing 50 50 between these two, but there's nothing stopping somebody from saying, well, I like this ETF more than the other, or this one's got too much Mag 7, not enough Mag 7, wherever your mind is. And you do 75/25, 25/75, you know, who knows? The sky's the limit here.

And I think that we have a pretty nice combo for going up against some of these beta plays. And especially now that I think there's been some people starting to question some of their exposures.

[00:09:54] Doug Heikkinen: Yeah, and you covered this a little bit, but let's really underline how WTV and QGRW compliment each other within a portfolio and maybe some of the benefits of holding these two funds simultaneously.

[00:10:10] Jeff Weniger: Sure. Sure. And I think. Well, it's, it's been one of these things where you don't have too many bear markets to look at in the history of WidsomTree. WidsomTree launched ETFs in June of 06. And even though we're talking about, and it's coming up on 19 years here, you don't have that many bear markets.

You got the global financial crisis. You got the summer ruction there years ago when Greece looked like it was going to exit the Eurozone. You have the six week downfall during COVID. The February to March, 2020 downdraft. And then of course you have the 2022 action. And QGRW was launched at the end of 2022.

So you don't know what it would have done during that year. But when you think about what they're screening for, they're both running screens on return on assets and return on equity. Profitability screens, profit margin screens, leverage screens. And one of the things that you find when you look back through history before WisdomTree became an entity, during WisdomTree's existence, is that oftentimes in a bear market, should one come to pass, and you never know, it is the companies that dilute their shareholders that get absolutely thrown to the dogs.

And if you think about it, this happened in the bear market from 68 to 70 that nobody talks about anymore. This happened in the bear market from 73, 74. This certainly, oh, it certainly happened in the dot com. I mean, if you want to think about Nasdaq going down 77 percent during dot com, then that means there were some companies that went down less than 77 and some went down more than 77.

It was the ones that were issuing equity. Because, I mean, just think about it logically. If I'm raising capital and my business model is satisfactory with, I've been operating an operating concern profits that I can display to you. Well, I can get a bank loan or I can tap the bond market for capital.

But if my business model is pie in the sky, let me get back to you in 2030 or 2035, when this grand idea that I have actually starts to work, or so I believe then, all right, that's fine. But the only way we're going to give you any capitals is equity. And so you dilute and you dilute and you dilute during an economic expansion, or during a bull market, and then you get your pants ripped off during the bear market.

And that's essentially what ends up happening in a lot of these bad, bad examples. I mean, the tide is coming in. The tide is coming out. You realize, whoops, I'm not wearing a bathing suit. That old maxim from Warren Buffett. And so when you're running these screens between these two, we would imagine that because you end up being so hyper quality focused between the two, that should people get exposed, pants off, in some bear market, it would be not very many of the holdings of these two. It's a value mandate combined with a growth mandate with tons of profitability buried inside.

[00:13:20] Doug Heikkinen: I know you talked about the MAG 7 in these funds, but can we discuss other sector exposures of WTV and QGRW and how these allocations align with current market opportunities and risks?

[00:13:33] Jeff Weniger: Sure, absolutely. Well, if you think about WTV by nature of running the buyback plus dividend screen, that creates the concept of shareholder yield.

And that's absolutely critical because basically as the decades went on, share buybacks became a greater way to return capital back to your shareholders than just classic dividend screens. And so when you end up doing that, you get a lot of the share buyback type sectors. Lately, at least in the modern era, that could always change in the future,

you get groups like financials, you get energy. There's not too much wild over or underweights outside of those. One of the things that could be accretive to that particular concept is that, if you look at the inflation reduction act, that was how the prior administration put in the 1 percent buyback tax.

It had been 0%. There was no such thing as a buyback tax. And there had been this threat that the buyback tax could go up to 4%. And that was something that was a cloud over WTV's head for some time. But now, it looks like it's at least paused at 1 percent and that maybe it could be rescinded if the IRA ends up going away.

We don't know. I mean, a kind of baseline should be keep it at 1%. I wouldn't go penciling in that. It goes back to zero anytime. Cause I don't think the Trump administration is paying attention to this particular thing right now. Now, with Q grow, all right, so when you run in Q grow, you're looking back at prior sales growth, you're looking at EBITDA, you're looking at street consensus earnings growth. Working that in tandem with return on equity and return on assets, which are key quality metrics. With inside the screen, no real constraints on cap size or anything like that, you end up with communication services and tech. Now, if you believe that it will be a more regulatory regime on the tech companies, which I would have probably put that forth a few years ago before all these tech CEOs pretty much started setting up camp at Mar a Lago.

If you believe that it would be a difficult regime for them, then you probably don't want QGRW. But now all I see is, you know, Jeff Bezos is lining up, various CEOs, at the inauguration a few weeks ago. I think it might be open sesame for tech and communication services.

The bigger issue for those exposures as QGRW picks them up is not so much what DC may or may not try to do to them, but whether or not we just got ahead of ourselves as a stock market on AI excitement, as may or may not have been exposed pretty acutely a couple of weeks ago, when NVIDIA and Broadcom just absolutely tanked.

[00:16:35] Doug Heikkinen: Looking ahead, and this is why we have people like you on this podcast, what are your expectations for the U. S. equities, and how do WTV and QGRW position investors to capitalize on potential market developments?

[00:16:50] Jeff Weniger: Well, I would say I'm a little cautious with respect to us equities. I mean, the reality on the ground is that street consensus for 2025 earnings growth is something on the order of about 14 percent. And you always give it a little leeway to disappoint to the downside without really upsetting the apple cart, because everybody knows these revisions come down as the year progresses. So even if it comes in at 9, 10, 11 percent on S&P 500 earnings growth, that should be just satisfactory, especially since we just spent the first five weeks of the year, basically, chopping sideways. Now you have elevated valuations. Over there in the top, not even just the top seven, or the mag seven, or any of these concepts.

I mean, really the S&P 100 does have a lot of heady valuations. I've spoken at length about how many, the sheer number of companies in US society that are trading from north of 10 times sales. More than during dot com. And that is the single biggest concern with respect to QGRW. Which is why one of the things that we point out with that ETF is, Hey, what are we doing with QGRW? What's the rationale behind owning it? Well, you're trying to beat the S&P 500. You better be locked and loaded over on growth. So combine it with the value mandate and then let these two work together from a factor perspective, pick up the dividend factor, pick up the buyback factor, be true to large cap, not mega cap.

You'll be pretty much sector agnostic if you own the two in tandem. And then when you do a weighted average valuation of these two, because let's say you have 8% of x, y, Z corp in QGRW because it's a Silicon Valley giant, and you combine it with WTV that owns 0%, well now you're 4% and you may be in the pair underweight, relative to the S&P.

So for example, in this morning's session, Google took a header, and of course we're sending around the emails at WisdomTree, Hey, these are the ETFs that own Google, these are the ETFs that don't. This is the percentages. And when you combine WTV with QGRW, it's net underweight. So it's actually a good thing.

You know, QGRW is overweight, WTV is severely underweight, the two of them together, net out to an underrate relative to the S&P 500. And so when you combine WTV with QGRW because of the nature of their screens, you end up with quality metrics that are higher than that of the broad market. And then on basically every multiple you could think of, whether it's a price to sales multiple, price to earnings multiple, these types of concepts. Cheaper than a Russell 1000 or the S&P 500. .

[00:19:32] Doug Heikkinen: Jeff, fascinating and informative stuff. Thank you so much for joining us.

[00:19:37] Jeff Weniger: My pleasure.

[00:19:38] Doug Heikkinen: To learn more about WisdomTree, please visit wisdomtree.com. Please follow us for timely updates on X, LinkedIn, and Facebook, all @Advisorpedia.

For everyone at Advisorpedia, our producer Julia Smollen, our engineer Tory Miller, and the Power Your Advice podcast team, this is Doug Heikkinen.

[00:19:54] Disclosure: Before investing, carefully consider a fund's investment objectives, risk, charges, and expenses contained in the prospectus available at wisdomtree.com/investments. Read it carefully. There are risks involved with investing, including the possible loss of principle.