Yahoo Finance Highlights the Vident International Equity Fund vs. Dominant Industry Approach


Posted by Vident Financial on 3/2/22 11:40 AM

In late 2021, Yahoo Finance did a write-up on Vident International Equity Fund (VIDI) ("Is Vident International Equity ETF (VIDI) a Strong ETF Right Now?," Zacks Equity Research, 11-18-21, finance.yahoo.com). The article put its finger on how most of the industry works:

"The ETF industry has traditionally been dominated by products based on market capitalization* weighted indexes that are designed to represent the market or a particular segment of the market."

("Is Vident International Equity ETF (VIDI) a Strong ETF Right Now?," Zacks Equity Research, 11-18-21, finance.yahoo.com)

The article points out that this dominant industry approach is based on a particular theory of how markets behave:

"A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns."

("Is Vident International Equity ETF (VIDI) a Strong ETF Right Now?," Zacks Equity Research, 11-18-21, finance.yahoo.com)

What is “market efficiency”? Here are some excerpts from Investopedia’s definition:

"Market efficiency refers to the degree to which market prices reflect all available, relevant information. If markets are efficient, then all information is already incorporated into prices, and so there is no way to "beat" the market because there are no undervalued or overvalued securities available."

(Source: Market Efficiency by the Investopedia Team, investopedia.com)

However, market efficiency is not universally accepted, and has been questioned:

"Whether or not markets such as the U.S. stock market are efficient, or to what degree, is a heated topic of debate among academics and practitioners."

(Source: Market Efficiency by the Investopedia Team, investopedia.com)

One of the cited problems with the market efficiency approach is that it ignores the price of the stock:

"…at the other end of the spectrum … are the value investors, who believe stocks can become undervalued, or priced below what they are worth. Successful value investors make their money by purchasing stocks when they are undervalued and selling them when their price rises to meet or exceed their intrinsic worth."

(Source: Market Efficiency by the Investopedia Team, investopedia.com)

The capitalization-weighted approach, which embodies in real world finance the academic theory of market efficiency, therefore ignores the negative consequences of investing during bubbles. In fact, it goes further than that: since the higher the price of the stock, the higher the market capitalization (all other things being equal). Market capitalization indices have a pro-bubble bias: They buy more of what has gotten more expensive and less of what is 'on sale'.

Yahoo Finance recognized how VIDI is different from 'following the market' approaches that dominate the industry. Instead of 'following the market' and automatically tracking a market capitalization' approach, it is based on principles:

"But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

… The Vident International Equity Index is an international equity index that combines principles-based country and securities selection with sophisticated risk management. The index balances risk across developed and emerging economies and emphasizes those with favorable conditions for growth."

("Is Vident International Equity ETF (VIDI) a Strong ETF Right Now?," Zacks Equity Research, 11-18-21, finance.yahoo.com)

Yahoo's analysis also noted that VIDI is a fund of substantial size:

"VIDI has amassed assets over $452.76 million, making it one of the larger ETFs in the World ETFs."

("Is Vident International Equity ETF (VIDI) a Strong ETF Right Now?," Zacks Equity Research, 11-18-21, finance.yahoo.com)

[Author note: As of January 31, 2022, VIDI's net assets were $428.13 million. For current holdings please visit www.videntfunds.com/funds/vidi or call 800.617.0004.]

The holdings information and net asset value of VIDI reported in the November 18, 2021, Yahoo Finance article are as of a former period in time, and Vident Financial and its subsidiaries do not guarantee their accuracy. For current information, please visit www.videntfunds.com/funds/vidi.

Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. To obtain a prospectus visit www.videntfunds.com/literature or call 800-617-0004. Please read it carefully before investing.

VIDI seeks to track the Vident Core International Equity Index™ (VIEQX). VIEQX is an index seeking to balance risk across developed and emerging countries and emphasize those with favorable conditions for growth. It is not possible to invest directly in an index.

Investing involves risk, including the risk of loss of principal. VIDI has the same risks as the underlying securities traded on the exchange throughout the day at market price. Redemptions are limited and often commissions are charged on each trade. Investments in non-U.S. securities involve certain risks that may not be present with investments in U.S. securities. For example, non-U.S. investments may be subject to risk of loss due to foreign currency fluctuations or to political or economic instability and may have additional trading, settlement, custodial and operational risks. These factors and others can make investments in the fund more volatile and potentially less liquid than other types of investments. VIDI may invest in companies organized in emerging market nations which can involve additional risks relating to political, economic or regulatory conditions. VIDI may invest a significant portion of its assets in the securities of companies of a single country or region and therefore it is more likely to be impacted by events or conditions affecting that country or region. VIDI invests in the securities included in, or representative of, its Index regardless of their investment merits. VIDI’s performance may be adversely affected by a general decline in the market segments relating to its Index. Small and medium capitalization companies tend to have more limited liquidity and greater price volatility than large-capitalization companies.

The fund’s investment adviser is Vident Advisory, Inc. VIDI’s sub-adviser is Vident Investment Advisory (VIA). Vident Financial owns the index that underlies the fund. The Vident International Equity Fund is distributed by ALPS Distributors, Inc. ALPS is not affiliated with Vident Financial, Vident Advisory or VIA.

Diversification does not ensure a profit or protect against a loss.

*Market Capitalization is the total dollar value of all outstanding shares, calculated by multiplying shares times current market price.



The opinions expressed herein are those of Vident Financial at the time of publication and are subject to change. This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the information described herein, any risks associated therewith and any related legal, tax, accounting or other material considerations. Recipients should not rely on this material in making any future investment decision.

Investors cannot invest directly in an index. Indexes are not managed and do not reflect management fees and transaction costs that are associated with some investments. Past performance does not guarantee future results.