One of the objectives of model portfolios should be to help advisors deliver alpha to clients, but not all model portfolio structures succeed on this front. Advisors should be mindful of the concept of performance alpha.
A good place to start is with the Global Multi-Asset Income Model Portfolios, which are part of WisdomTree’s menu of Modern Alpha Model Portfolios. Within the Global Multi-Asset series, there seven portfolios for advisors to consider, ranging in risk tolerance from very conservative to very aggressive to ensure there’s something for every type of client risk profile.
“Designed to help maximize income, offer capital appreciation potential and reduce volatility, this strategy typically provides exposure to a diversified allocation of dividend-focused stocks and yield-focused bonds using ETFs with global exposure,” according to WisdomTree. “The strategy may include both WisdomTree and non-WisdomTree ETFs. These model portfolios were previously known as Income Model Portfolios.”
Inside Performance Alpha
The very aggressive sleeve of the Global Multi-Asset Income Model Portfolio is doing an admirable job of delivering alpha.
“Alpha is often generalized as achieving excess returns relative to a benchmark. An example is the WisdomTree Global Multi-Asset Income Aggressive Model Portfolio beating its benchmark by 175 basis points (bps), at net asset value, annually since inception,” writes WisdomTree Asset Allocation Associate Ryan Krystopowicz.
Moreover, this WisdomTree model portfolio is cost-effective, meaning performance is less likely to be hindered by fees.
“The model portfolio expense ratio is the weighted average net expense ratios of its underlying fund constituents,” according to Krystopowicz. “Fidelity’s portfolio solutions team sampled more than 4,000 advisor-created asset allocation model portfolios and found the average net expense ratio was 64 bps!4 Way too much, in my opinion, and more than double the expense ratio of most WisdomTree Model Portfolio strategies.”
This model portfolio is 90% invested in equities, spread across nine exchange traded funds addressable large-, mid- and small-cap domestic stocks as well as ex-US developed and emerging markets fare. The 10% fixed income allocation is derived from seven ETFs, including a variety of geographic exposures and credit qualities,
Finally, WisdomTree model portfolios don’t charge a strategist fee.
“Strategist fee, as it relates to model portfolios, is an additional expense charged on top of the net expense ratios as a management fee. Many asset managers with their own proprietary funds don’t charge a strategist fee. They are comfortable only collecting revenue off the net expense ratios and are monetarily inclined to use only proprietary products in their models,” notes Krystopowicz.
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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.