Amid another wave of coronavirus cases, it’s fair to say the U.S. economy could move in fits and starts over the coming months, potentially increasing the allure of fixed income allocations as advisors look to reduce risk in client portfolios.
One avenue for accomplishing that objective is with WisdomTree’s Fixed Income Model Portfolio.
“This model portfolio is focused on a diversified stream of income. It seeks to benefit from secular trends we see evolving in the fixed income markets in a risk-conscious manner. The model portfolio focuses on select opportunities in core sectors, while strategically allocating among sectors and extending the model portfolio’s reach globally,” according to WisdomTree.
Home to eight fixed income ETFs, the model portfolio sports a trailing 12-month distribution rate of 2.49%, which is well in excess of what advisors will find on traditional aggregate bond benchmarks today.
Playing It Safe with Bonds
Recently, the world’s largest economy was cobbling together some momentum, but then another spate of COVID-19 cases emerged, imperiling momentum.
“The concern is whether that momentum can be sustained, given the second COVID-19 wave. The data has been a bit of a mixed bag on that front,” said Kevin Flanagan, WisdomTree head of fixed income in a recent note. “Consumer spending has continued to provide support, albeit at a reduced pace. More recently, news reports surrounding Black Friday and Cyber Monday sales trends have tended to underscore where we are in 2020.”
With two runoff elections for Georgia Senate seats slated for January, it’s worth noting how a blue wave could have profound effects on fixed income assets, too.
The WisdomTree Fixed Income Model Portfolio features eight ETFs with varying credit qualities and durations. The model portfolio can help advisors position for slowing economic growth in the months ahead.
“Our reasonable case scenario implies that growth will slow during the second half of Q4 and the start of 2021,” notes Flanagan. “But according to most early GDP forecasts, it looks like a positive performance is still expected for the final three months of this year. The Atlanta Fed’s GDPNow measure estimates Q4 real GDP at +11%. While this gauge was a good indicator for the actual Q3 growth number, it seems too high this time around.”
For more on how to implement model portfolios, visit our Model Portfolio Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
