Use a Model Portfolio for Endowment-Style Investing | ETF Trends

A cornerstone of endowment investing is generating solid risk-adjusted returns while minimizing volatility. Alone, that’s tough objective for many advisors to meet and it becomes even trickier when introducing alternative assets, which many endowments rely on to reduce risk and boost returns.

WisdomTree offers a series of model portfolios with endowment-style strategies that can help advisors deploy alternative assets while mitigating risk.

“Endowment is a reference to including non-traditional assets in addition to stocks and bonds, similar to a strategy that many endowments employ. The strategies may use both WisdomTree and non-WisdomTree ETFs. It typically includes U.S. and international equity and fixed income funds, along with different types of alternative strategies,” according to WisdomTree.

A Practical Approach

WisdomTree’s endowment series of model portfolio includes five risk profiles, ranging from conservative to aggressive.

“By thoughtfully integrating equities, bonds and alternative investments, WisdomTree has created variations of each model with differing risk profiles. WisdomTree’s bespoke approach seeks to ensure that there is a model portfolio for a range of investors, from the conservative to the aggressive,” according to the issuer.

The aggressive portfolio is only 20% allocated to bonds and 30% to alternative strategies. One of its equity components, the WisdomTree 90/60 U.S. Balanced Fund (NTSX), is itself an alternative idea.

There’s been a lot of market experts denouncing the use of the 60-40 bond allocation in the extended bull run with such strategies as an 80% equities allocation paired with a 20% fixed income allocation touted as more ideal. However, given the market performance of equities and bonds during this coronavirus-laden market this year, investors might want to rethink the 60-40 strategy.

NTSX takes the traditional 60-40 exposure and adds a bit of juice–1.5x leveraged exposure that is–in order to create a 90% allocation to equities coupled with a 60% allocation to bonds.

“In addition to boosting capital efficiency, we also believe that 90/60 provides investors with the ability to enhance returns with noncore assets such as long/short equities, risk parity, CTAs or true alternatives,” according to WisdomTree. “By deploying an overlay strategy to boost capital efficiency, a 90/60 strategy has the potential to enhance total returns while also helping dampen volatility via alternatives.”

NTSX has nearly $280 million in assets under management and its equity allocation is primarily large cap.

For more on how to implement model portfolios, visit our Model Portfolio Channel.