Some forms of technical analysis are often too much “inside baseball” for many investors. However, the concept of moving averages is one of the most important technical indicators and an easier one to grasp. The newly minted WisdomTree U.S. Adaptive Moving Average Fund (WAMA) and the WisdomTree International Adaptive Moving Average Fund (WIMA) make that burden even easier. They are specifically designed to put moving average market analysis into practice.
For example, a security that has labored below its 200-day moving average for an extended period of time and shows signs of moving above that trendline could enter a new bull market. Conversely, a stock, bond, or ETF that has long resided above its 200-day moving average and breaks below that line could enter a new bear market.
Last week WisdomTree launched WAMA and WIMA. Designed to apply the moving average concept to the market, the two new index-based ETFs utilize a simple, rules-based strategy. When the underlying gauges move above the 200-day lines, the funds move into stocks. Similarly, if the index closes below the 200-day SMA for two consecutive days, the fund shifts to T-bills. In other words, these rookie ETFs do the moving average legwork for investors.
Understanding How WAMA, WIMA Work
The new ETFs follow adaptive moving average offshoots of the WisdomTree 500 and WisdomTree International LargeCap Indexes. How these funds go about their business is refreshingly straightforward.
“A long position is initiated when the index closes 1% above its 200-day simple moving average (SMA) for two consecutive trading days,” according to the issuer. “The position is exited when the index closes below 1% below its 200-day SMA for two consecutive trading days.”
The 1% buffer is important because there are occasions when assets move above or below their 200-day simple moving averages, but do so with little conviction while rapidly reverting to their prior state. That can be frustrating and costly to investors.
There are also other reasons that flexibility is important. “Inherently the 200 day SMA can be slow moving in times of quicker recovery leading to investors missing out on the crucial recovery period. In order to mitigate this, the WisdomTree adaptive moving average strategies deploy the breadth overlay allowing greater participation in market recoveries,” explained WisdomTree.
WAMA’s annual fee is 0.32%, or $32 on a $10,000 position, while WIMA charges 0.42% per year.
This article was prepared as part of WisdomTree’s general paid sponsorship of VettaFi | ETF Trends. This specific content within and any opinions expressed therein belong solely to VettaFi and do not reflect the opinion or analysis of WisdomTree, its employees, or its affiliates. Content published on VettaFi | ETF Trends is provided for educational purposes only and should not be considered investment or tax advice. For investment or tax advice, please consult a financial professional.
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