WisdomTree has launched a new ETF in Europe that aims to redefine the way investors think about core asset allocations.
Pierre Debru, Head of Quantitative Research & Multi-Asset Solutions, WisdomTree.
The WisdomTree US Efficient Core UCITS ETF has been listed on London Stock Exchange in US dollars (Ticker: NTSX LN) and pound sterling (WTEF LN) as well as on Deutsche Boerse Xetra (WTEF GY) and Borsa Italiana (NTSX IM) in euros.
The strategy underpinning NTSX seeks to address a dilemma faced by investors looking to balance risk and reward through diversification.
Historically, the traditional 60/40 equity-bond portfolio has provided reduced volatility and an improved Sharpe ratio when compared to a 100% allocation to equities, aligning with Nobel laureate Harry Markowitz’s Modern Portfolio Theory.
Yet, it is no secret that the traditional 60/40 portfolio lags a 100% equity portfolio in terms of returns, meaning investors generally must sacrifice performance in exchange for lower risk.
WisdomTree’s approach integrates the classic 60/40 model but modifies it by using leverage to provide volatility comparable to the 100% equities portfolio. Extensive research has shown that, historically, the resulting portfolio presents with a Sharpe ratio that is as good as, or better than, the 60/40 portfolio.
Furthermore, by optimizing capital efficiency through its use of leverage, the strategy can enable investors to pursue more meaningful allocations to non-core diversifying investments.
Methodology
The fund tracks the WisdomTree US Efficient Core UCITS Index which features a multi-component structure: 90% in US large-cap equities, 60% in US Treasury futures, and a 10% cash component serving as collateral for the futures contracts.
The equity sleeve consists of the 500 largest US equities by market capitalization that satisfy WisdomTree’s ESG screening criteria. The futures portfolio, meanwhile, consists of an equally weighted basket of five US Treasury futures contracts with maturities ranging from two to 30 years.
The index rebalances to its target asset composition on a quarterly basis.
According to WisdomTree, the ETF may serve as either an effective substitute for existing core equity allocations or as a supplementary strategy to enhance them. It offers not a middle ground, but a higher ground for investors caught between the desire for increased returns and the need for reduced risk.
Pierre Debru, Head of Quantitative Research & Multi-Asset Solutions, WisdomTree, said: “WisdomTree’s US Efficient Core strategy can provide greater return enhancement, risk management, and diversification potential versus a 100% equity portfolio. It may have similar volatility to a 100% equity allocation over market cycles, but our research shows it can help reduce drawdowns and potentially provide higher risk-adjusted returns too.
“Additionally, it can be used to replace a combination of stocks and bonds, in an effort to create a more efficient portfolio that frees up space for allocations to other diversifiers or alternative strategies, like broad commodities, gold or crypto assets.”
Alexis Marinof, Head of Europe, WisdomTree, added: “In challenging market environments, investors need access to more tools and solutions to help them achieve their investment objectives. Our US efficient core ETF can help investors create optimal portfolio blends and magnify portfolio exposures through the same concept that drives their asset allocation.
“WisdomTree was founded on providing investors with innovative exposures and we continue to focus on bringing products to market that add value to our clients and their portfolios.”
The ETF comes with an expense ratio of 0.20% and is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).