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When Strategy Matters, Use a Tailored Approach

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Investment is always about strategy, but for advisors looking to get an even more strategic with the aim of benefiting client outcomes can consider model portfolios.

For example, WisdomTree’s series of Strategic Model Portfolios offer advisors an avenue for long-term growth ideas with the potential for reduced volatility.

“This model portfolio is designed for investors with mid- to long-range time horizons who are willing to tolerate short-term price fluctuations. The model portfolio seeks to balance growth of capital through domestic and international equity ETFs, with potentially volatility-reducing fixed income ETFs that also serve as a source of current income,” according to WisdomTree. “The model portfolio strives to deliver performance in excess of a 60/40 combination of a broad-based global equity benchmark and a U.S. aggregate bond index.”

The moderate sleeve of this model portfolio – there are also conservative and aggressive sleeves – offers clients a refreshed view of the traditional 60/40 equity/fixed income split.

A Modern Model Portfolio

Too often, 60/40 portfolios rely on domestic large caps and U.S. government debt. These days, Treasuries yields are paltry, subjecting investors to the risk of diminished income streams. As for the equity issue, focusing too much on large U.S. stocks can mean lost opportunities in the mid- and small-cap spectrums as well as missing out on international value.

WisdomTree’s Strategic Model Portfolios eliminate those risks. For example, the moderate model portfolio features 11 equity ETFs, spanning domestic large, mid- and small-cap stocks. It also features five ex-US equity funds, including some with small-cap exposure.

On the fixed income side, there is some international exposure, but the diversification advantage here is more about credit and maturity diversity. That is to say, the model portfolio’s bond exposure isn’t overly reliant on long-term Treasuries. It features short duration exposure as well as allocations to investment-grade and junk corporates.

One of the fixed income holdings is the WisdomTree Mortgage Plus Bond Fund (NYSEArca: MTGP), which offers strong credit quality and higher yields than are found on Treasuries.

MTGP is an actively managed ETF primarily investing in agency residential and commercial mortgage-backed securities while having the flexibility to diversify into other sectors of the securitized debt market. The fund is sub-advised by Voya Investment Management Co., LLC (Voya IM), a well-respected investment manager in securitized debt managing over $31 billion.

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.

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