Rethinking 60/40 With a Customized Model Portfolio | ETF Trends

The old 60/40 equity/fixed income split is still favored by many investors, but there are avenues for sprucing it with the potential for superior income and quality exposure.

Enter the Moderate Model Portfolio under the Select Model Portfolio, which is part of WisdomTree’s Modern Alpha series of model portfolios.

Those model portfolios are “designed to provide exposure to a diversified allocation of stocks and bonds using ETFs. The strategy seeks to balance the growth of capital through domestic and international equity ETFs, and preservation of capital with fixed income ETFs that may serve as a source of income and potentially reduce volatility,” according to WisdomTree.

This model portfolio contains three groupings: conservative, moderate, and aggressive. Each contains equity ETFs issued by WisdomTree and other sponsors while the fixed income funds all hail from the PIMCO stable.

Quality Call

The Moderate Allocation Portfolio has ample income exposure with six PIMCO fixed income funds and 10 WisdomTree equity ETFs, each of which pays a dividend. Overall, the portfolio has a trailing 12-month yield of 2.62%. That’s well above the yield on the S&P 500 and 10-year Treasuries.

The WisdomTree U.S. Quality Dividend Growth Fund (NasdaqGM: DGRW), an ETF right for the current environment, is one of the cornerstones of the Moderate Allocation Portfolio.

DGRW seeks to track the price and yield performance of the WisdomTree U.S. Quality Dividend Growth Index. The index is a fundamentally weighted index that consists of dividend-paying U.S. common stocks with growth characteristics.

In the current environment, investors should be emphasizing companies or ETFs that focus on quality yield. High-yielding assets could come with high-risk, so for investors who don’t have a cast-iron stomach for risk, then quality is a must–especially investing in companies with a solid track record of dividends

The good news is that DGRW features hardly any exposure to the energy and real estate sectors, which are high yields and possibly home to more negative dividend action as 2020 moves along. Rather, DGRW allocates more of its weight to tech and healthcare, among other groups, which have more positive dividend profiles.

Several of the other equity holdings in the Moderate Allocation Portfolio follow similar quality-based methodologies, ensuring advisors can deliver superior income solutions to clients.

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.