ETF of the Week: WisdomTree U.S. Efficient Core Fund (NTSX)

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.

NTSX is an actively managed portfolio of US equities and US Treasury futures contracts. This fund is a strategy for those to rethink the 60/40 stock/bond investment methodology.The question is: does the 60/40 strategy still hold true in today’s market? No investment strategy is perfect, and 60/40 may be more of a default choice than true asset allocation. Despite its intention as a  risk mitigator,  the traditional  60/40  portfolio has been almost perfectly correlated to equity market returns throughout history because of its equity beta. This has been true across the U.S., developed international, and emerging markets.

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.

Similar: ETF of the Week: WisdomTree U.S. Quality Dividend Growth Fund (DGRW) 

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.