This week on our Masters in Business interview, we speak with University of Pennsylvania Wharton School Professor Jeremy Siegel. The “Wizard of Wharton” as he has been called has been teaching at Wharton for 44 years.
Siegel is also a Senior Investment Advisor to WisdomTree Investments, one of the earliest creators of Fundamental Index ETFs. Rather than assembling an index by its market capitalization, fundamental indexing uses other metrics such as earnings, dividend yield or book value. The concept is still a passively managed fund, but one that does not get wildly over-weight certain names. The idea was pioneered by Rob Arnott of Research Affiliates (RAFI).
Siegel’s motivation for using these funds came from his experience during the dotcom days. During the late 1990s, the Nasdaq was wildly expensive, trading (in Siegel’s words) at “600 times earnings.” They tech stocks in the S&P500 were disproportionately represented. Indeed, all the megacap holdings dominated the index during 1999 and 2000. When the bottom dropped out, these stocks which had risen too high, fell especially hard. Wisdom Tree ETFs were designed to avoid that sort cap weighted problem.
Next week, we speak with Paul Desmond of Lowry’s Research.