ETF Trends CEO Tom Lydon discussed the WisdomTree U.S. Efficient Core Fund (NTSX) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
Intermediate-term U.S. Treasuries, however, have stronger diversification potential. Over market cycles, U.S. Treasuries have fluctuated between periods of modestly positive and deeply negative correlations to equities. This has also been consistent across U.S.-developed international and emerging markets as well.
Depending on the point in the economic cycle, U.S. Treasuries may have a slightly positive or deeply negative correlation to risky assets like equities. Over long periods of time, they have exhibited a consistently negative correlation. By combining these assets into a single portfolio, investors can meaningfully boost the risk efficiency of the allocation.
While no hedge is perfect, when equity markets decline, U.S. Treasury bond prices have historically tended to increase. The result is intended to be a portfolio that maintains a high correlation to the market for possible equity upside, with potentially lower volatility and drawdowns through greater fixed income exposure.
Regarding WisdomTree’s approach – enhanced 90/60 portfolio theory, it’s important to provide beta exposure to equity markets while managing risk through an overlay of U.S. Treasury Futures. This exposure is created by investing 90% of the Fund’s assets in equities and 10% in short-term fixed income. The 60% bond exposure is attained through investment in a laddered U.S. Treasury futures contract.
Finally, NTSX is a part of WisdomTree’s new “Efficient Core” family of ETFs. The WisdomTree Efficient Core suite seeks to leverage the benefits of overlays providing fixed income exposure to provide capital efficiency of U.S., international, and emerging equity markets. Additionally, the WisdomTree Efficient Core ETFs are designed to help investors create capital-efficient equity and bond portfolio blends that have lower volatility or similar volatility as a standalone 100% equities allocation.
Listen to the full podcast episode on the NTSX:
For more podcast episodes featuring Tom Lydon, visit our podcasts category.