Emerging Market Ebullience Could Make This Model Portfolio a Winner

One of the many asset classes forecast to benefit from regime change in the U.S. is emerging markets equities.

Advisors looking to capitalize on that theme in tailored fashion should consider WisdomTree’s Emerging Market Model Portfolio.

“This model portfolio is designed for investors with a long-term horizon looking for exposure to a broad universe of Emerging Market equities primarily using factor focused ETFs. The selected ETFs provide certain factor tilts that have the potential to generate excess return relative to comparable cap-weighted benchmarks over longer-term holding periods. The strategies may use both WisdomTree and non-WisdomTree ETF,” according to WisdomTree.

Emerging markets were relatively steady last year, and valuations still look compelling for the group.

“For one, emerging markets are expected to have seen a relatively benign economic contraction in 2020—a 2% dip in gross domestic product—followed by a fast 6% rebound, according to Citigroup’s global equities strategists’ estimates. The U.S. is expected to dip 3% and rise 5% in 2021, in line with global growth. Meanwhile, EM valuations look reasonable,” reports Jacob Sonenshine for Barron’s.

Find the Right Model Portfolio for 2021

Looking ahead, we may see an even greater reliance on digitalization with younger generations coming of age and tapping into rising innovation. Internet and e-commerce business models are receiving a slight boost, notably from an increase in demand for widely adapted e-commerce businesses. The shift in day-to-day habits from lockdown measures to contain the pandemic has accelerated the adaption of certain platforms, such as distance learning, telemedicine, and food delivery, among others.

Those are themes some components in the WisdomTree model portfolio are levered to, bolstering the case for the model portfolio this year.

With U.S. equities looking relatively expensive, the WisdomTree portfolio takes on added allure.

“The average forward earnings multiple for the S&P 500 is almost 23 times. Wall Street considered 22 times rich in December, and the current multiple reflects an equity risk premium—the excess rate of expected equity returns over the soaring 10-year Treasury yield—of just 3.3%. Historically, the risk premium rarely goes below 3%. The lower the risk premium, the less attractive stocks are,” Barron’s reports.

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.