The WisdomTree U.S. SmallCap Fund (EES) seeks to track the WisdomTree U.S. SmallCap Index, which measures the performance of small-capitalization U.S. companies weighted by their earnings rather than market capitalization. This earnings-weighted approach provides exposure to profitable small-cap stocks while reducing allocation to unprofitable or loss-making companies.
How It Works
EES uses a fundamentally-weighted methodology that allocates holdings based on company earnings over the most recent four quarters rather than traditional market-cap weighting. Companies must demonstrate positive cumulative earnings to be included, automatically excluding unprofitable firms. The fund rebalances annually each December to reflect updated earnings data and index changes. This passive approach typically holds 600-800 small-cap stocks, with earnings-based weighting creating different sector and individual stock allocations compared to market-cap weighted small-cap ETFs.
Key Features
- Earnings-weighted methodology automatically excludes unprofitable small-cap companies, potentially reducing exposure to speculative or distressed stocks
- Zero expense ratio makes it one of the most cost-effective small-cap ETF options available to investors
- Fundamentally-weighted approach may provide different risk-return characteristics compared to traditional market-cap weighted small-cap funds
Risks
- This ETF can lose value significantly during small-cap bear markets, potentially declining 40-50% as smaller companies face greater volatility than large-caps
- Earnings-weighting bias toward profitable companies may underperform during speculative growth periods when unprofitable small-caps outperform established profitable firms
- Small-cap stocks face higher business failure risk, liquidity constraints, and economic sensitivity compared to large-cap alternatives
Who Should Own This
Best suited for long-term investors with 5+ year time horizons and high risk tolerance seeking small-cap exposure as a satellite holding (5-15% of equity allocation). Appeals to value-oriented investors preferring fundamentally-weighted strategies over market-cap approaches. Appropriate for those building diversified portfolios who want profitable small-cap exposure without paying active management fees.