Pay Attention to Earnings-Based ETFs

Roll out the earnings! That's what WisdomTree is doing with its new batch of ETFs, all fundamentally weighted on the basis of trailing earnings. Generally speaking, the more a company earns, the more it's weighted in the index that forms the basis for the WisdomTree ETF in question.

Some of the press literature notes that these funds will track a little closer to the makeup of the more traditional cap-weighted indices than do WisdomTree's previously listed dividend-weighted ETFs.

The new funds mark WisdomTree's further commitment to the belief that fundamental indexing is superior to market-cap weighting. Although even its oldest funds haven't been around very long, the successful (if short) track record of actual results and lengthy backtest (especially for the dividend ETFs) means this new crop of ETFs at least merits consideration:

• WisdomTree Total Earnings Fund(EXT): Broad Market
• WisdomTree Earnings 500 Fund(EPS): Large-Cap
• WisdomTree MidCap Earnings Fund(EZM): Mid-Cap
• WisdomTree SmallCap Earnings Fund(EES): Small-Cap
• WisdomTree Earnings Top 100 Fund(EEZ): Large-Cap
• Wisdom Tree Low P/E Fund(EZY): Multi-Cap

There are a few specifics with these funds to touch on, but all will require a more in-depth study by anyone looking to buy these funds. Four of the funds -- EES, EZM, EXT and EPS -- weight companies by total dollars earned, so $1 billion earned would weigh more than $900 million, for example. The Top 100 fund weighs its constituents by earnings yield, which not so simply is earnings divided by market capitalization, with a couple of other particulars. The low-price-to-earnings-ratio fund is a little easier to grasp; it weights the stocks with the lowest P/E ratios most heavily.