On Thursday, WisdomTree, an exchange traded fund (ETF) and exchange-traded product (ETP) sponsor and asset manager, announced the launch of the Efficient Core family of ETFs. The family includes the International Efficient Core Fund (NTSI) and the Emerging Markets Efficient Core Fund (NTSE), which will list on the NYSE. The funds offer expense ratios of .26% and .32%, respectively.

NTSI seeks total return by investing in international equity securities and U.S. Treasury futures contracts. NTSE seeks total return by investing in emerging markets equity securities and U.S. Treasury futures contracts.

Additionally, the WisdomTree 90/60 U.S. Balanced Fund has been renamed the WisdomTree U.S. Efficient Core Fund (NTSX). 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.

Enhanced Core via 90/60 Portfolio Theory

Historically, a balanced portfolio (60% equities, 40% bonds) has served as the bedrock (and benchmark) for asset allocation decisions. WisdomTree believes this same intuition can create core strategies in the U.S., international, and emerging markets. However, instead of allocating to a portfolio of stocks and bonds, the firm can provide stock exposure to the U.S., international, and emerging equity markets with a capital efficient exposure to fixed income. 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 laddered U.S. Treasury futures contracts.

Jeremy Schwartz, WisdomTree Global Head of Research, said: “High valuations in equities and bonds present a challenge and headwinds for traditional portfolio approaches in achieving investor goals. 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.”

NTSX, NTSI, and NTSE: What’s Under the Hood?

U.S. Treasuries drive the efficiency of the Efficient Core ETFs as they are highly liquid, easy to access, and provide a good hedge against selling pressure on risk assets. Three key components make up the Funds:

  • Long Equity Beta: A portfolio of approximately 500 large cap stocks (U.S., International, or Emerging Markets) weighted by market capitalization.
  • A Cash Component: For every $100 invested in the ETF, $10 is kept in short-term collateral that earns returns comparable to U.S. Treasury bills.
  • Laddered Futures Positions: Laddered 2, 5, 10, & 30-year U.S. Treasury futures contracts, which are expected to help manage interest rate risk.

WisdomTree believes that these strategies can enhance the efficiency of core asset allocation, increase the tax efficiency of fixed income in taxable accounts, and free up capital to invest in non-core and diversifying assets.

Learn more about the Efficient Core Funds here.

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