Election-Induced Volatility Highlights Case for this Model Portfolio

With Election Day just a few weeks away, advisors may be examining avenues for reducing volatility within client portfolios.

The Volatility Management Model Portfolio, which is part of WisdomTree’s broader universe of Modern Alpha model portfolios, can accomplish that objective.

The Volatility Management Model Portfolio is “designed for investors who seek to incorporate alternative investments into a traditional portfolio using ETFs. Volatility Management is a reference to including non-traditional assets in addition to stocks and bonds in order to reduce overall portfolio volatility as measured by annual standard deviation. This model portfolio was previously known as the Alternatives Model Portfolio,” according to WisdomTree.

This model portfolio could be particularly relevant from now into year end.

“2020 has been an incredibly unpredictable year—but it’s not over yet. As we enter Q4, another rise in COVID-19 infections seems imminent, uncertainty surrounding the election’s outcome is rising each day, and Congress remains at a stalemate when it comes to a highly anticipated pandemic relief package,” writes Marc Odo of Swan Global Investments.

Backed by BTAL

One of the components in WisdomTree’s Volatility Management Model Portfolio is the AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL).

BTAL tracks an equal-weighted index that takes long positions in low beta US stocks offset by short positions in high beta US stocks. It provides consistent exposure to the anti-beta factor by investing in the underlying index which reconstitutes and rebalances monthly in equal dollar amounts in equally weighted long low beta positions and equally weighted short high beta positions within each sector.

BTAL is considered an alternative investment and as such can act as an important portfolio diversifier and an avenue for reducing correlations. While not zero, BTAL’s correlations to broader benchmarks, such as the S&P 500, are low relative to pure beta instruments.

BTAL underscores the relevancy of the the WisdomTRee Volatility Management Model Portfolio.

With the calendar ticking over to Q4 2020, the U.S. presidential election looming and an uptick in Covid-19 cases, market volatility is returning. It could be a cause for investors and advisors to keep their heads up and eyes open. ETF Trends spoke with Bill DeRoche, Chief Investments Officer for AGF Investments LLC, and Head of AGFiQ Alternative Strategies, to shed some light on how they are handling the situation and the advice they have for advisors.

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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.