WisdomTree has introduced its second ‘Efficient Core’ ETF in Europe, a strategy designed to redefine how investors approach their core asset allocation to equities and bonds.

Pierre Debru, Head of Quantitative Research & Multi Asset Solutions, WisdomTree.

The WisdomTree Global Efficient Core UCITS ETF has been listed on the London Stock Exchange in US dollars (NTSG LN) and pound sterling (WGEC LN) as well as on Deutsche Boerse Xetra (NTSG GY) and Borsa Italiana (NTSG IM) in euros.

NTSG offers a capital-efficient means of investing in a diversified portfolio of developed market equities and global government bonds. It complements the WisdomTree US Efficient Core UCITS ETF (NTSX), launched in October 2013, which focuses more narrowly on US-listed stocks and US Treasuries.

The strategy underpinning NTSG and NTSX aims to address a common challenge faced by investors seeking to balance risk and reward through diversification. Historically, the traditional 60/40 equity-bond portfolio has been favored for its ability to reduce volatility and improve the Sharpe ratio compared to a 100% equity allocation, aligning with Nobel laureate Harry Markowitz’s Modern Portfolio Theory. However, it is well known that a 60/40 portfolio tends to underperform a 100% equity portfolio in terms of returns, forcing investors to sacrifice performance for reduced risk.

WisdomTree’s approach enhances the classic 60/40 model by incorporating leverage, which allows the portfolio to achieve volatility comparable to a 100% equity allocation. Research shows that this strategy has historically delivered a Sharpe ratio equal to or better than that of the traditional 60/40 portfolio. By optimizing capital efficiency through leverage, the strategy enables investors to allocate spare capital more effectively to non-core, diversifying investments.

Methodology

NTSG tracks the WisdomTree Global Efficient Core Index, which follows a multi-component structure: 90% to global equities (comprising the largest 1,500 stocks from developed markets globally, avoiding companies that do not satisfy WisdomTree’s ESG criteria), 60% to global government bond futures (comprising a basket of front-month futures contracts on US, UK, German, and Japanese government bonds with maturities ranging from two to 30 years), and a 10% cash component (which serves as collateral for the futures contracts).

The index is rebalanced quarterly to maintain its target asset composition.

According to WisdomTree, the ETF is designed to act as either an effective substitute for existing core equity allocations or a supplementary strategy to enhance them. It offers investors not a middle ground but a higher ground, addressing the dual objectives of increased returns and reduced risk.

NTSG has an expense ratio of 0.25%, slightly higher than the 0.20% charged by NTSX. Both ETFs are classified as Article 8 products under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).

Pierre Debru, Head of Quantitative Research & Multi Asset Solutions, WisdomTree, said: “The Efficient Core concept aims to provide another powerful tool for investors to push the boundaries of what is possible to improve their portfolios. By combining the two main tools from the modern portfolio theory, diversification and leverage, it is possible to unlock even more efficient portfolios. The result is intended to be a portfolio that maintains a high correlation to the market for possible equity upside, with potentially lower volatility and drawdowns through greater fixed income exposure, while also allowing for allocations to other diversifiers or alternative strategies, like broad commodities, gold or crypto assets.”

Alexis Marinof, Head of Europe, WisdomTree, added: “Our research-driven Efficient Core ETFs are a demonstration of the synergies and innovations WisdomTree can bring to investors as a global and differentiated ETF issuer. WisdomTree’s thoughtful approach to innovation is focused on bringing solutions that add value to portfolios and that help investors achieve their investment objectives. Through this range of ETFs investors can make their capital work harder by enhancing the efficiency of core asset allocation while improving a portfolio’s risk/return profile.”