Currency Hedging Will Change Your Life. Presenter: CHRIS GANNATTI, CFA Associate Director of Research WisdomTree Asset Management

Transcription

1 Currency Hedging Will Change Your Life Presenter: CHRIS GANNATTI, CFA Associate Director of Research WisdomTree Asset Management

2 Currency Hedging Will Change Your Life Presenter: CHRIS GANNATTI, CFA Associate Director of Research WisdomTree Asset Management

3 Hedged Equities 1 st Quarter 2015

4 Strategic Question is Not: Why Should I Hedge? But Rather Why Should I Wager on Currencies? Returns Volatility Levels Correlations to S&P 500 MSCI EAFE w/ Currency MSCI EAFE No Currency EAFE FX MSCI EAFE w/ Currency EAFE FX MSCI EAFE No Currency S&P 500 MSCI EAFE w/ Currency EAFE FX MSCI EAFE No Currency 12/31/69-3/31/15 9.1% 7.8% 1.2% 17.0% 8.4% 14.4% 15.3% Year (Cumulative) 16.5% 35.9% -14.3% 11.6% 5.5% 8.7% 9.3% Year 9.0% 16.6% -6.5% 13.0% 5.6% 9.9% 9.6% Year 6.2% 9.1% -2.7% 16.6% 7.4% 11.7% 13.0% Year 4.9% 6.1% -1.1% 18.2% 7.6% 14.6% 14.8% year 5.2% 6.1% -0.9% 16.6% 7.4% 14.6% 15.2% Avg. Ann. Std. Dev (Currency+Equity), Incremental Contribution to Avg. Ann. Std. Dev (Equity, Currency) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2.0% 7.3% S&P 500 Currency + Equity*** Currency** Equity* 9.3% International Equity Volatility (03/31/ /31/2015) 3.2% 13.0% 9.1% 9.9% 9.6% 4.8% 11.8% 16.6% 13.0% 3.6% 14.6% 18.2% 1-Year 3-Year 5-Year 10-Year 14.8% * Equity: Volatility of the equity prices denominated in their local currency, in this case EAFE FX. * * Currency: Incremental volatility added to the local due to changes in the v alue of EAFE FX relativ e to the U.S. dollar. * **Currency + Equity: Volatility of the combination of both the local equity prices denominated in local currency as well as that of the EAFE FX relativ e to the U.S. dollar. Volatility: A measure of the dispersion of actual returns around a particular average level. Source: WisdomTree, MSCI, 12/31/69-3/31/15. Past performance is not indicative of future results. Subject to change. EAFE FX refers to the underlying currency exposure of the MSCI EAFE Index. You cannot invest directly in an index. 4

5 Global Equities Are Best Diversifier to Business Risk of A Strong Dollar Environment 50% 45% Equity Returns Currency Returns Percentage 40% 35% 30% 25% 20% 15% 10% 5% 0% 4.8% U.S. Domestic U.S. Exporters Japan Exporters Eurozone Exporters 1.3% 11.2% 12/31/14-03/31/ % 4.8% 27.4% 20.8% 20.3% 06/30/14-03/31/ % 10.3% 36.1% 03/31/14-03/31/ % 6.0% 0.3% 12/31/14-03/31/15 Bloomberg Dollar Total Return Index U.S. Dollarvs. Yen U.S. Dollar vs. Euro 12.7% 19.2% 18.6% 06/30/14-03/31/ % 17.5% 16.4% 03/31/14-03/31/ % Source: WisdomTree, Factset, as of 3/31/15. Past performance is not indicative of future results. Equity performance numbers are median returns in the respectiv e local currency. Exporters are defined as having revenues greater than 40% outside their respective country or region. Domestic is defined as hav ing more than 80% revenue from within their respective country or region. 5

6 Central Bank Policy Divergence Potential to Signal a Stronger Dollar, Especially versus the Euro and Yen Easing Bias Central Bank Policy Pendulum Tightening Bias What Does QE Accomplish 1 : Higher inflation expectations Bank of Japan Currency depreciation European Central Bank Bank of England Federal Reserve Higher equity valuations Lower real interest rates 1 James Bullard, OMFIF Golden Series Lecture, May 23, 2013 Arrows: Indicates that central banks have announced monetary policy measures ov er 2014 and 2015 Dots: Indicates how aggressiv e central banks have been in easing monetary policy through both conventional and unconventional monetary policy easing measures through 2014 and 2015 Source: WisdomTree, Relev ant Central Bank Websites, Bloomberg. Past performance is not indicative of future results. 6

7 Myth of Currency Hedging: It is Expensive to Hedge your Currency Risk Annualized Interest Rate Differentials Relative to U.S. 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% Cost of Hedging Currency with 1-Month Forwards Primarily Based on Interest Rate Differentials (trailing 12 month ending 03/31/2015) 11.2% 9.1% 6.1% 6.3% 3.3% 2.6% 1.6% 0.3% -0.7% -0.3% -0.2% 12.3% Source: Bloomberg. Subject to change. Past performance is not indicative of future results. 7

8 Currencies in the MSCI EAFE Index Complex have Displayed Cycles that Average 8 Years Cumulative Dollar Impact on MSCI EAFE Index Returns Dollar Weakens Dollar Strengthens Dollar Weakens Dollar Strengthens Dollar Weakens Dollar Strengthens Currency Trend Periods Average Annual Returns for MSCI EAFE Currencies Average Annual Returns for MSCI EAFE Local Equity Markets Dec 31, Oct 31, % 4.8% Nov 1, Feb 28, % 16.9% Mar 1, Apr 28, % 8.7% May 1, Jan 31, % 7.7% Feb 1, Jul 31, % 2.0% August 1, Mar 31, % 13.4% Entire Period 1.2% 7.8% Avg. Annual Return 14% 12% 10% 8% 6% 4% 2% 0% MSCI EAFE Index in Local Currency (12/31/ /31/2015) 12.1% 7.8% 6.1% Down Currency Trend Up Currency Trend All Periods Source: MSCI as of 3/31/2015. Past performance is not indicative of future results. You cannot invest directly in an index. 8

9 Dividend Growth & Currency Hedging Providing Compelling Returns versus Foreign Peer Group Currency Exposure in WisdomTree International Hedged Dividend Growth Fund (IHDG as of 3/31/2015) Swedish krona, 4.4% Others*, 13.9% Morningstar Fund Category: US ETF & OE Foreign Large Value, Blend & Growth Total Return 6/1/2014-3/31/2015 Rank in Peer Group % of Peer Group Beaten WisdomTree International Hedged Dividend Growth Fund 9.9% 12 99% Australian dollar, 7.2% Swiss franc, 12.9% Japanese yen, 7.2% Fund/Index Name British pound, 19.3% Euro, 35.2% Ticker MSCI EAFE Index -3.9% % # of Peers in Fund Category M ornings tar propriet ary rat ings reflect historical ris k-adjus ted performance as of 3/31/ M ornings t ar, I nc. All Right s Reserved. The information cont ained herein: ( 1) is propriet ary t o M ornings tar and/or it s content providers ; ( 2) may not be copied or dis t ribut ed; and ( 3) is not warrant ed to be accurat e, complet e or t imely. Neither Morningstar nor it s content providers are res pons ible for any damages or los s es aris ing from any us e of this informat ion. Past performance, rankings and rat ings are no guarant ee of fut ure results. The Percent Rank in Category is the funds' total-return percent ile rank relat ive t o all funds within the same Morningstar Category and is subject to change each mont h. Regarding number of funds, 1 = Bes t and 100 = W ors t. Expense Ratio Fund Inception Date YTD 1-Year 3-Year 5-Year Average Annual Returns as of 3/31/2015 FUND INFORMATION TOTAL RETURN NAV (%) MARKET PRICE (%) Since Fund Inception 1,494 YTD 1-Year 3-Year 5-Year Since Fund Inception WisdomTree International Hedged Dividend Growth Fund IHDG 0.58% 5/7/ % N/A N/A N/A 12.78% 11.45% N/A N/A N/A 12.10% WisdomTree International Hedged Dividend Growth Index 11.47% 13.83% N/A N/A 13.45% 11.47% 13.83% N/A N/A 13.45% MSCI EAFE Local Currency Index 10.85% 17.74% 16.62% 9.07% 17.47% 10.85% 17.74% 16.62% 9.07% 17.47% *Ot hers refer t o Norw egian Krone, I sraeli Shekel, Hong Kong Dollar, Singapore Dollar, Danish Krone and New Zealand dollar. Sources: W isdomtree, Standard & Poor s, Bloomberg, w ith data as of 3/31/2015. Holdings Subject t o Change Performance is historical and does not guarantee future results. Current performance may be lower or higher than quoted. Investment returns and principal value of an investment will fluctuate so that an investor s shares, when redeemed, may be worth more or less than their original cost. Performance data for the most recent month-end is available at W isdomtree shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Total Returns are calculated using the daily 4:00 p.m. EST net asset value (NAV). Market price returns reflect the midpoint of the bid/ask spread as of the close of trading on the ex change w here the Fund shares are listed. Market Price returns do not represent the returns you w ould receive if you traded shares at other times. You cannot inv est direct ly in an I ndex. I ndex performance does not represent act ual fund or port folio performance. A fund or port folio may differ significantly from the securities included in the Index. Index performance assumes reinvestment of dividends, but does not reflect any management fees, t ransact ion costs or other ex penses that w ould be incurred by a portfolio or fund, or brokerage commissions on transactions in Fund shares. Such fees, ex penses and commissions could reduce ret urns. Source: Morningstar, WisdomTree 9

10 Japanese Equities Inversely Correlated with the Yen

11 Why Hedge Yen? Stocks Negatively Correlated Recently, Reacting Positively to Yen Weakness Cumulative Return 120% 100% 80% 60% 40% 20% 0% -20% -40% Cumulative Performance for 11/30/ /31/ % 41.6% -31.3% WisdomTree Japan Hedged Equity Index MSCI Japan Index Yen Spot Rate (vs. USD) As of 3/31/2015 WT Index Inception YTD 1-Year 3-Year Since WT Index Inception WisdomTree Japan Hedged Equity Index 2/1/ % 30.43% 21.00% 11.46% MSCI Japan Index 10.21% 12.06% 9.36% 6.90% Japanese yen Spot Rate -0.37% % % -5.38% Sources: Bloomberg, WisdomTree, dates chosen to represent the start of the Abenomics period. Past performance is not indicative of future results. You cannot invest directly in an index. Index performance does not represent actual fund or portfolio performance. A fund or portfolio may differ significantly from the securities included in the index. Index performance assumes reinv estment of dividends but does not reflect any management fees, transaction costs or other expenses that would be incurred by a portfolio or fund, or brokerage commissions on transactions in fund shares. Such fees, expenses and commissions could reduce returns. Yen Spot Rate Refers to the exchange rate of the Japanese Yen (JPY) vs. the U.S. dollar (USD). 11

12 While U.S. was Driven by Multiple Expansion in , Japan Experienced Best Growth in Earnings that Led to slight P/E* Compression 120% 100% 97.9% 95.7% Price and Profit Growth in Japan 80% 60% 45.4% 40% 20% 19.0% 13.8% 18.4% 0% -3.7% -20% -13.2% TOPIX MSCI EAFE S&P 500 MSCI EUROPE Source: Bloomberg, WisdomTree (11/30/12-4/1/15). Past performance is not indicative of future results. You cannot Profit Increase Price Increase inv est directly in an index TOPIX MSCI EAFE S&P 500 MSCI EUROPE Profit Increase 97.9% -3.7% 13.8% -13.2% Price Increase 95.7% 19.0% 45.4% 18.4% P/E Start (11/30/2012) 15.0x 13.0x 13.6x 12.2x P/E End (4/01/2015) 14.9x 16.1x 17.4x 16.7x Expansion in P/E -1.1% 23.6% 27.8% 36.4% Source: Bloomberg. (11/30/12-4/1/15). Data ends on 4/1 to account for Japan s fiscal year that ends 3/31 yearly and earnings expectation reset 4/1. Past performance is not indicative of future results. You cannot invest directly in an index. The start date was chosen to coincide with the start of Abenomics. *P/E: Price-to-earnings (P/E) ratio: Share price divided by earnings per share. Lower numbers indicate an ability to access greater amounts of earnings per dollar inv ested. 12

13 Money in Motion on BOJ/GPIF Japanese Government Pension Investment Fund (GPIF) allocating to foreign assets, including smart beta* equities On Oct. 31, 2014, the GPIF, the largest pension in the world with $1.1 trillion in assets, adjusted its asset allocation Asset Allocation Increased its holdings of risky assets including Japanese equities and foreign equities and bonds and reduced its holdings in Japanese Government Bonds (JGBs) Old New Increased allocations in Smart Beta active management** away from traditional active management JGBs 60% 35% Japanese Stocks 12% 25% Foreign Bonds 11% 15% Foreign Stocks 12% 25% BOJ providing dual endorsement to the Exchange Traded Fund (ETF) structure and non-cap weighted beta As part of its quantitative easing program, the BOJ has been purchasing ETFs to provide monetary stimulus In their latest program announcement, the BOJ tripled its annual ETF purchases to ~$35bn [GPIF: Revision of manager structure for domestic equity investment] Passive Investments (TOPIX) Traditional Active Investments Indexing Strategy TOPIX JPX-Nikkei 400 MSCI Japan Russell Nomura Prime Smart Beta Active Management Traditional Active Management Passive Investments Active Investments Source: Gov ernment Pension Investment Fund Japan, April You cannot invest directly in an index. *Smart Beta: A term for rules-based investment strategies that don t use conventional market-cap weightings. * * Smart Beta Activ e Management: Refers to activ ely managed structures that employ smart beta strategies. 13

14 European Equities Volatility Reduction

15 Currency Exposure to the Euro Increased Beta and Volatility relative to the S&P 500 Index Returns Volatility Levels Correlations to S&P 500 MSCI EMU w/ Currency MSCI EMU No Currency EMU FX MSCI EMU w/ Currency EMU FX MSCI EMU No Currency S&P 500 MSCI EMU w/ Currency EMU FX MSCI EMU No Currency 12/31/87-3/31/ % 8.5% -0.7% 20.0% 10.4% 17.8% 10.5% Year 10.2% 18.4% -6.9% 17.3% 8.7% 12.4% 9.6% Year 4.5% 9.5% -4.5% 22.5% 10.9% 14.9% 13.0% Year 3.8% 5.8% -1.9% 23.0% 10.8% 17.2% 14.8% year 6.8% 8.1% -1.2% 21.0% 10.1% 18.5% 15.2% Beta vs. U.S. Equities Beta Relative to U.S. Equities (03/31/ /31/2015) Year 5-Year 10-Year European Equities-Local Currency* European Equities-U.S. Dollars** U.S. Equities*** Source: WisdomTree, Bloomberg, MSCI. Dates were chosen to reflect longest av ailable data. * European Equities-Local Currency: MSCI EMU Local Currency Index, in which returns are measured in euros. * * European Equities-U.S. Dollars: MSCI EMU Index, in which returns are measured in U.S. dollars. * **U.S. Equities: S&P 500 Index Past performance is not indicative of future results. You cannot invest directly in an index. Beta: Measure of the v olatility of an index or inv estment relative to a benchmark. A reading of 1.00 indicates that the investment has moved in lockstep with the benchmark; a reading of indicates that the investment has moved in the exact opposite direction of the benchmark. Volatility: A measure of the dispersion of actual returns around a particular average level. 15

16 Why Hedge the Euro? Cumulative Return Cumulative Performance for 12/31/ /31/ % 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0% Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 WisdomTree Europe Hedged Equity Index MSCI EMU Index Euro Spot Rate (vs. USD) 26.5% -3.5% -21.9% As of 03/31/2015 WT Index Inception YTD 1-Year Since WT Index Inception WisdomTree Europe Hedged Equity Index 7/2/ % 24.13% 24.50% MSCI EMU Index 5.33% -6.13% 15.84% Euro Spot Rate % % -5.85% Sources: Bloomberg, WisdomTree. WisdomTree Europe Hedged Equity Index inception date was 7/2/2012. Past performance is not indicative of future results. You cannot invest directly in an index. Index performance does not represent actual fund or portfolio performance. A fund or portfolio may differ significantly from the securities included in the index. Index performance assumes reinv estment of dividends but does not reflect any management fees, transaction costs or other expenses that would be incurred by a portfolio or fund, or brokerage commissions on transactions in fund shares. Such fees, expenses and commissions could reduce returns. Start Date: 2014 performance was chosen to reflect the year in which the ECB has launched an easing program. 16

17 When Do You Want European Equities? When Their Currencies are Declining 20% 15% 10% 5% 0% MSCI EMU Index in Local Currency (12/31/ /31/2015) 14.3% 9.3% 1.4% Down Currency Trend Up Currency Trend Returns all periods Currency Trend Periods Average Annual Returns for European Currencies Average Annual Returns for Local Equity Markets Dec 31, May 31, % 34.3% June 1, Aug 31, % -1.3% Sep 1, May 31, % 19.8% June 1, Mar 31, % 2.2% Apr 1, Mar 31, % 5.1% Entire Period -0.7% 9.3% Source: MSCI EMU U.S. Dollar and Local Currency Index. Past performance is not indicative of future results. You cannot invest directly in an index. Dates reflect cyclical currency mov ements from peak to trough since the MSCI EMU Index inception. The currency impact was calculated by dividing (1+ USD returns) by (1+ Local Currency returns) to determine whether the movement was positive or negative. 17

18 Mechanics of the Currency Hedge The currency hedge is implemented with short positions in 1-month forward contracts versus the U.S. dollar Currency non-deliverable forward contracts (NDFs) rebalanced monthly-- notional principle equals assets in funds Intra-month adjustments of currency hedge: Creation/redemption offers natural time to adjust currency hedge positions Cost of Hedging currencies are a function of two primary drivers: Difference in 1-month interest rates between the United States and Country of potential hedged currency (the current differential is minimal). Liquidity (the bid/ask spread) of the forwards. JPY/USD (Yen/Dollar), EUR/USD (Euro/Dollar) and GBP/USD (British Pound/Dollar) are three of the most liquid markets for NDF contracts. Taxation of forward contracts If gains arise from the NDF hedge, they are taxed as 40% short -term and 60% long-term capital gains If losses arise, they can be carried forward in accordance with Internal Revenue Service rules to potentially offset future gains. Trading WisdomTree Funds will generate tax consequences and transaction expenses. Tax consequences regarding dividend distributions may vary by inv estor. Neither WisdomTree Investments, Inc., nor its affiliates, nor Foreside Fund Serv ices, LLC, and its affiliates, prov ide tax advice. Information prov ided herein should not be considered tax advice. Investors seeking tax advice should consult an independent tax advisor. 18

19 Conclusion We believe that currency hedging in the developed international equity space will be one of the most important portfolio considerations over the next three to five years Hedging the euro, yen, pound or the Swiss franc is presently inexpensive based on differences across shortterm interest rates Developed international currency exposure may not be an effective hedge against U.S. inflation, judging by history Macroeconomic policies such as those being utilized currently within Japan and in Europe could lead to a potentially weaker euro or yen relative to the U.S. dollar The U.S. Federal Reserve may be the first to stop its practices of Quantitative Easing, relative to other Developed Market Central Banks, leading to the potential for a stronger U.S. dollar (and weaker foreign currencies) Potential Broad International Solution: The WisdomTree International Hedged Dividend Growth Fund (IHDG) Potential Japan Solutions: The WisdomTree Japan Hedged Equity Fund (DXJ), WisdomTree Japan Hedged SmallCap Equity Fund (DXJS), WisdomTree Japan Hedged Financials Fund (DXJF), WisdomTree Japan Hedged Real Estate Fund (DXJR), WisdomTree Japan Hedged Capital Goods Fund (DXJC), WisdomTree Japan Hedged Tech, Media and Telecom Fund (DXJT), WisdomTree Japan Hedged Health Care Fund (DXJH) Potential Europe Solutions: The WisdomTree Europe Hedged Equity Fund (HEDJ), WisdomTree Germany Hedged Equity Fund (DXGE) and WisdomTree United Kingdom Hedged Equity Fund (DXPS). 19

20 Index Definitions WisdomTree International Hedged Dividend Growth Index: Designed to provide exposure to the developed market companies while neutralizing exposure to fluctuations between the value of foreign currencies and the U.S. dollar. Comprises companies from the WisdomTree DEFA Index with the best combined rank of growth and quality factors. WisdomTree Japan Hedged Capital Goods Index: An index weighted by float-adjusted market capitalization, designed to provide exposure to Japanese capital goods companies while at the same time neutralizing exposure to fluctuations between the yen and the U.S. dollar. WisdomTree Japan Hedged Equity Index: Index designed to provide exposure to Japanese equity markets while at the same time neutralizing exposure to fluctuations of the Japanese yen movements against the U.S. dollar. Constituents are dividend-paying companies incorporated in Japan that derive less than 80% of their revenue from sources in Japan. Weighting is by cash dividends paid. WisdomTree Japan Hedged Financials Index: An index weighted by float-adjusted market capitalization, designed to provide exposure to Japanese financial companies while at the same time neutralizing exposure to fluctuations between the yen and the U.S. dollar. WisdomTree Japan Hedged Health Care Index: An index weighted by float-adjusted market capitalization, designed to provide exposure to Japanese health care companies while at the same time neutralizing exposure to fluctuations between the yen and the U.S. dollar. WisdomTree Japan Hedged Real Estate Index: An index weighted by float-adjusted market capitalization, designed to provide exposure to Japanese real estate companies while at the same time neutralizing exposure to fluctuations between the yen and the U.S. dollar. WisdomTree Japan Hedged SmallCap Equity Index: Designed to provide exposure to Japanese equity markets while at the same time neutralizing fluctuations of the Japanese yen movements against the U.S. dollar. WisdomTree Japan Hedged Tech, Media and Telecom Index: An index weighted by float-adjusted market capitalization, designed to provide exposure to Japanese tech, media and telecom companies while at the same time neutralizing exposure to fluctuations between the yen and the U.S. dollar. WisdomTree Europe Hedged Equity Index: Index designed to provide exposure to European equities while at the same time neutralizing exposure to fluctuations between the Euro and the U.S. dollar. Constituents are European dividend-paying firms with a least 50% of their revenues from outside of Europe. Weighting is by cash dividends paid. 20

21 Index Definitions MSCI EAFE Index: is a market cap-weighted index composed of companies representative of the developed market structure of developed countries in Europe, Australasia and Japan. MSCI Japan Index: A market cap-weighted subset of the MSCI EAFE Index that measures the performance of the Japanese equity market. MSCI Japan Local Currency Index: A market cap-weighted index that measures the performance of the Japanese equity market in the local currency (yen). Tokyo Stock Price Index (TOPIX): A free float-adjusted market capitalization-weighted index that is calculated based on all the domestic common stocks listed on the Tokyo Stock Exchange First Section. S&P 500 Index: Market capitalization-weighted benchmark of 500 stocks selected by the Standard and Poor s Index Committee designed to represent the performance of the leading industries in the United States economy. MSCI Europe Index: A free float-adjusted market capitalization-weighted index designed to measure the performance of developed equity markets in Europe. JPX-Nikkei 400: is composed common stocks whose main market is the TSE 1st section, 2nd section, Mothers or JASDAQ market (in principle). The components are reviewed annually to keep the representativeness of the market. Russell/Nomura Indexes: are value weighted and include only common stocks domiciled in Japan. All indexes are subsets of the Russell/Nomura Total Market Index, which represents approximately 98% of the investable Japan equity market. MSCI Germany Index: Index weighted by float-adjusted market capitalization designed to measure the performance of the German equity market. MSCI United Kingdom Index: A market capitalization-weighted index designed to measure the performance of the United Kingdom equity market. MSCI Sweden Index: is designed to measure the performance of the large and mid cap segments of the Swedish market. MSCI France Index: A market capitalization-weighted index designed to measure the performance of the French equity market. MSCI Spain Index: is designed to measure the performance of the large and mid cap segments of the Spanish market. MSCI Italy Index: is designed to measure the performance of the large and mid cap segments of the Italian market. MSCI Denmark Index: is designed to measure the performance of the large and mid cap segments of the Danish market. MSCI Switzerland Index: is designed to measure the performance of the large and mid cap segments of the Swiss market. MSCI Netherlands Index: A market capitalization-weighted index designed to measure the performance of the Netherlands equity market. 21

22 Index Definitions MSCI Belgium Investable Market Index (IMI): is designed to measure the performance of the large, mid and small cap segments of the Belgian market. MSCI EMU Index: A free float-adjusted market capitalization-weighted index designed to measure the performance of the markets in the European Monetary Union. MSCI EMU Local Currency Index: captures large- and mid-cap representation across the 11 developed market countries in the EMU and provides local currency returns, which are not translated back to U.S. dollars. Japan s Nikkei: Short for Japan s Nikkei 225 Stock Average, the leading and most-respected index of Japanese stocks. It is a priceweighted index comprised of Japan s top 225 blue-chip companies on the Tokyo Stock Exchange. The Nikkei is equivalent to the Dow Jones Industrial Average Index in the U.S. JPY TWI: The trade-weighted yen is compiled as a weighted average of exchange rates of home versus foreign currencies, with the weight for each foreign country equal to its share in trade. This index is computed by the Bank of England. Euro Stoxx: Refers to the Euro Stoxx 50 Index, a market capitalization-weighted stock index of 50 large, blue-chip European companies operating in Eurozone nations. EUR TWI: The trade-weighted euro is compiled as a weighted average of exchange rates of home versus foreign currencies, with the weight for each foreign country equal to its share in trade. This index is computed by the Bank of England. 22

23 Important Information Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund s before investing. To obtain a prospectus containing this and other important information, please call WISE (9473) or visit wisdomtree.com to view a prospectus online. Read the prospectus carefully before you invest. There are risks associated with investing, including possible loss of principal. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Funds focusing their investments on certain sectors, regions and/or smaller companies increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility. The Funds focus their investments in Japan or Europe, thereby increasing the impact of events and developments in Japan or Europe that can adversely affect performance. The Japan Sector Fund use various strategies to attempt to minimize the impact of changes in the Japanese yen against the U.S. dollar, which may not be successful. Dividends are not guaranteed and a company currently paying dividends may cease paying dividends at any time. Investments in currency involve additional special risks, such as credit risk, interest rate fluctuations, derivative investments which can be volatile and may be less liquid than other securities, and more sensitive to the effect of varied economic conditions. Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations. Derivative investments can be volatile and these investments may be less liquid than other securities, and more sensitive to the effect of varied economic conditions. The Funds invest in the securities included in, or representative of, its Index regardless of their investment merit and the Funds do not attempt to outperform its Index or take defensive positions in declining markets. As the Funds can have a high concentration in some issuers, the Funds can be adversely impacted by changes affecting those issuers. Due to the investment strategy of certain Funds they may make higher capital gain distributions than other ETFs. Please read each Fund's prospectus for specific details regarding each Fund's risk profiles. Diversification does not eliminate the risk of experiencing investment losses. WisdomTree Funds are distributed by Foreside Fund Services, LLC. WTGM