Jeremy Schwartz Discusses Investment After the Financial Crisis

Episode Summary

Executive Summary: The transcript centers on Barry Ritholtz’s extended interview with Jeremy Schwartz of WisdomTree, covering his career path, the firm’s survival through the 2008 crisis, and WisdomTree’s investment philosophy around dividend, earnings, valuation, and currency-hedged ETFs. Schwartz argues that low-cost indexing is a major investor win, while WisdomTree differentiates through rules-based factor tilts, hedging, and technology-enabled advisor tools.

Main Topics: WisdomTree’s origin and survival through the financial crisis (Priority: 5/5): Schwartz recounts joining WisdomTree early, the firm’s startup conditions, near-failure during 2008-2009, and the capital raise that helped it survive and grow. Jeremy Siegel’s mentorship and the intellectual roots of the firm (Priority: 5/5): He describes working for Jeremy Siegel at Wharton, helping with Stocks for the Long Run, and how Siegel’s valuation and behavioral finance views shaped his investing approach. Dividend-, earnings-, and valuation-based ETF construction (Priority: 5/5): WisdomTree’s core approach is rules-based indexing that weights by dividends or earnings rather than market cap, aiming to reduce bubble risk and tilt toward value/quality. Currency hedging as a differentiator (Priority: 5/5): Schwartz explains DXJ, HEDJ, and WisdomTree’s broader thesis that currency exposure can dominate returns in international investing and often should be hedged. The rise of indexing and fee compression (Priority: 4/5): He defends indexing as fee-reducing and investor-friendly, arguing that passive flows do not automatically imply market distortion and that active managers often fail to add value. Advisor technology and the next stage of asset management (Priority: 4/5): WisdomTree is investing in advisor platforms, portfolio construction tools, and digital workflows to help financial advisors compete in a more tech-driven market. Fixed income factor strategies and bond valuation (Priority: 3/5): The conversation closes with WisdomTree’s bond strategies, including yield-enhanced and credit-screened fixed income portfolios, amid historically low yields and high duration.

Key Arguments: WisdomTree was built as a startup with high ambitions and nearly failed in the financial crisis, but capital support and market recovery allowed it to scale from under $3 billion in assets to about $45 billion. Jeremy Siegel’s influence was foundational: Schwartz credits him with shaping his thinking on valuation, behavior, and market history, and with providing the intellectual framework behind WisdomTree’s strategies. Dividend weighting and earnings weighting are presented as a practical alternative to market-cap weighting because they impose valuation discipline and can help avoid overexposure to bubbles. Currency hedging is not an exotic overlay but a way to isolate stock exposure; in some markets, especially Japan, ignoring currency can overwhelm equity returns. Indexing benefits investors by compressing fees and keeping more returns in clients’ pockets; Schwartz rejects the claim that passive investing is inherently destructive to price discovery. The firm’s future lies not just in products but in technology that helps advisors build portfolios, stress test exposures, and digitize client workflows. WisdomTree sees opportunity in fixed income factor strategies by reweighting away from the lowest-yielding parts of the bond market and screening for quality in credit. Valuation metrics like CAPE are useful but imperfect because accounting distortions can make reported earnings misleading, especially during crisis periods.

Data Points: WisdomTree assets under management at crisis low: slightly below $3 billion - Schwartz says the firm bottomed around this level in 2009 during the financial crisis. WisdomTree assets under management today: $45 billion - He cites this as evidence of the firm’s post-crisis growth. Number of ETFs when WisdomTree started: about 300 ETFs - Schwartz describes the ETF market as very early when WisdomTree launched in 2006. ETF industry assets at start: about $300 billion - He notes the size of the ETF market when WisdomTree entered. Time since launch of DXJ before hedging: since 2006, hedging added in April 2010 - DXJ was launched unhedged and later converted to a yen-hedged strategy. Japan hedged asset share: about 30% - Schwartz says roughly 30% of Japan assets are now hedged. Europe hedged asset share: about 20% - He estimates about 20% of European assets are hedged. Unhedged international assets: $1.8 trillion - He identifies this as the broad IFA complex that remains largely unhedged. Dividend family funds: 50+ funds - WisdomTree has a large global lineup centered on dividend strategies. U.S. earnings family funds: approximately 6 - Schwartz lists total market, large, mid, small, and specialty domestic economy/exporter strategies. WisdomTree U.S. fund lineup: close to 100 ETFs - He says the firm has nearly 100 funds in the U.S. market. Traditional market P/E mentioned: around 20x earnings - Schwartz gives this as a current estimate during the valuation discussion. Historical average P/E: 16x - He references this as the long-run historical average used by Siegel. S&P 500 earnings yield discussed: about 5% - Used in the debate over whether equities are expensive or fairly valued. 10-year TIPS yield mentioned in past call: 1% in 2011; later negative 1% - Referenced in the discussion of the bond bubble and real yields. Vanguard fee savings study: $40 billion over 20 years - Cited as evidence that fee compression has benefited investors.

Pivotal Quotes: "We were definitely bleeding losses. We definitely had capital raising in March of 2009." — Jeremy Schwartz: He describes how close WisdomTree came to not making payroll during the financial crisis. "The hedge is plain vanilla stock exposure, not stock plus currency." — Jeremy Schwartz: He explains WisdomTree’s philosophy that currency hedging should be viewed as removing extra risk, not adding complexity. "For every buyer, there's a seller." — Jeremy Schwartz: Used in his defense of indexing against claims that passive flows distort markets.

Implications: The conversation suggests ETFs will keep evolving from cheap market exposure into more targeted, technology-enabled factor and hedged solutions. Advisors who adopt digital tools and disciplined portfolio construction may gain an edge as fees compress and clients demand more transparency and customization.