WisdomTree US Efficient Core UCITS ETF

[Oswulf]

This new ETF has caught my eye. WTEF on the London Stock Exchange (Sterling class).

It's described here: https://www.wisdomtree.eu/en-gb/strateg ... cient-core

It almost sounds too good to be true.

Is this a reasonable way to allocate the US equity part of my portfolio? Or is there some hidden peril I'm missing?

Your thoughts much appreciated.

[Itsallaguess]

This new ETF has caught my eye. WTEF on the London Stock Exchange (Sterling class).

It's described here: https://www.wisdomtree.eu/en-gb/strateg ... cient-core

It almost sounds too good to be true.

It's a leveraged ETF.

From the link -

The levered 60/40 portfolio invests 150% each month in the 60/40 portfolio, and borrow 50% each month at a cost of one to three month T-bill.


From the Q&A link within the above page -

Is it possible for the strategy to break?

Despite its use of accounting leverage, the ETF cannot incur losses exceeding the principal amount invested.

However, the use of leverage does magnify both gains and losses and, as a result, making the strategy potentially more volatile.

Cheers,

Itsallaguess

[GeoffF100]

For $100 invested $90 is invested in equities. It is effectively a 90/10 portfolio. Google did not find a UK broker listing it, so I do not know about the costs, but I expect that they would be more than for simple index trackers. It tracks US equities. That does not make a lot of sense for a UK investor, except as a speculation that the US market will outperform in GBP terms.

[mc2fool]

For $100 invested $90 is invested in equities. It is effectively a 90/10 portfolio.

More like a 90/60 portfolio!

"Investors often rely on the diversification potential of a 60% stock / 40% bond portfolio in their asset allocation. The WisdomTree US Efficient Core strategy incorporates this same logic to enhance the risk-return profile of a large-capitalisation US equity portfolio.

It aims to deliver a 90% exposure to large cap US equities and 60% to US Treasury futures, effectively delivering a leveraged position to the traditional 60/40 portfolio. To do so the index invests quarterly 90% of its assets in US stocks and uses the remaining 10% as collateral to a 60% notional exposure in a basket of US futures."

Google did not find a UK broker listing it, so I do not know about the costs...

What google search did you use to determine that? In any case, being leveraged I'd suspect it falls under "complex instruments" and so many vanilla-only brokers (e.g. the Halifax stable) won't offer it, and I've just checked with Interactive Investor (where I can trade such types) and they aren't offering it either (although may do if someone asks....)

[JohnW]

Could be good but I don’t understand how it works. However..
The fund size is about £M1. My neighbour’s house is worth about that much, and he’s nobody. That’s not viable, and they’ll close it if it doesn’t take off; inconvenient for us at the least.
Secondly, the fund is a month old. Don’t be impressed by a tear away chart hoping to have you think how well it has done since 1992; ask to see the performance chart of the fund, not the backtested theory, and tell me if one months performance usually impresses you. It’s light work for a computer to test dozens of strategies using historical data, find the better ones, allowing someone to create a fund using one of those strategies, and then promote it as a winner.
Create a whole bunch of funds, if by good fortune or good design some work well keep and promote them, and allow the others to wither away hoping never to be remembered.

[GeoffF100]

For $100 invested $90 is invested in equities. It is effectively a 90/10 portfolio.

More like a 90/60 portfolio!

"Investors often rely on the diversification potential of a 60% stock / 40% bond portfolio in their asset allocation. The WisdomTree US Efficient Core strategy incorporates this same logic to enhance the risk-return profile of a large-capitalisation US equity portfolio.

It aims to deliver a 90% exposure to large cap US equities and 60% to US Treasury futures, effectively delivering a leveraged position to the traditional 60/40 portfolio. To do so the index invests quarterly 90% of its assets in US stocks and uses the remaining 10% as collateral to a 60% notional exposure in a basket of US futures."

Google did not find a UK broker listing it, so I do not know about the costs...

What google search did you use to determine that? In any case, being leveraged I'd suspect it falls under "complex instruments" and so many vanilla-only brokers (e.g. the Halifax stable) won't offer it, and I've just checked with Interactive Investor (where I can trade such types) and they aren't offering it either (although may do if someone asks....)

Well, it would effectively be 90/10 is the bonds and loans were short term cash. In reality, there is added interest rate risk. The equity element is deleveraged rather than leveraged, but the bond element is leveraged.

I just searched for the name of the fund, which usually brings up the usual suspects, but I drew a blank.

I do not believe that there is a lot of point in looking at this fund closely. It does not seem to have much going for it, but it could, of course, get lucky.

[Oswulf]

Google did not find a UK broker listing it, so I do not know about the costs

It's 0.2% p.a. according to Morningstar.

https://www.morningstar.co.uk/uk/etf/sn ... entType=FE

That does not make a lot of sense for a UK investor, except as a speculation that the US market will outperform in GBP terms.

I would have thought that home country bias is a far greater peril - particularly given the parlous state of the UK at the moment.

[Oswulf]

The fund size is about £M1.

That's only for the UK Sterling share class. The parent fund, NTSX on NYSE Arca, has a value of US$805 million.

Secondly, the fund is a month old.

The parent fund, which used to be named WisdomTree 90/60 U.S. Balanced Fund, has since inception in 2018 returned 7.93% p.a.. (That's in US$, of course.)

https://www.wisdomtree.com/investments/ ... n_ntsx.pdf

[Oswulf]

There's a write up of the US version of the ETF at

https://seekingalpha.com/article/454374 ... -spy-maybe

Mostly negative in tone.

[Itsallaguess]

There's a write up of the US version of the ETF at

https://seekingalpha.com/article/454374 ... -spy-maybe

Mostly negative in tone.

From the above article -

Final thoughts -

When looking at new ETF like NTSX with unique strategies, I then like to see if a combination of ETFs executes a closely-aligned process that has better results.

Without much effort, I found one.

Since NTSX is basically 90% equity, by building a portfolio of 90% SPY and 10% Vanguard Short-Term Corporate Bond ETF (VCSH), I see better return and risk data.

https://seekingalpha.com/article/4543742-examining-ntsx-as-a-substitute-for-spy-maybe

For me personally, the leveraged WisdomTree ETF (NTSX) looks to be something dreamt up in a marketing meeting rather than an investment one, where it's perhaps more important for the offering to be able to stand out from other ETF options in a crowded marketplace, hoping to attract interest from it's leverage-based differentiator, rather than more solid investment fundamentals.

One for the gamblers, perhaps, rather than investors, although I've no doubt at all that there's a market for that type of product in today's 'get-rich-quick' world...

Cheers,

Itsallaguess

[mc2fool]

Google did not find a UK broker listing it, so I do not know about the costs

It's 0.2% p.a. according to Morningstar.

And also according to WisdomTree in their Q&A document. But note that all of three of the documents for the ETF are marked as for professionals only, and there doesn't appear to be a KID for it, so it's unlikely to be available through most UK stock brokers/platforms.

[mrbatch]

This fund is available on interactive investor ii in the UK with ticker WTEF for the GBP share class.

Fee is 0.25%

The fund has grown to $3,178,574 AUM as of 16th Jan 2024 - I don't know if this is slow, average or fast growth for a new etf but thats what is reported. I have meaningful allocation to this now in SIPP and ISA

What is of interest to me is that buying this fund makes space for other uncorrelated assets in my portfolio. The seeking alpha contrasts 90% equity 10% bonds to NTSX/WTEF which I could not commit to as too much pure equity exposure. My WTEF holdings that effectively include bond exposure allow my portfolio to include other assets such as trend/managed futures whilst still aiming for a nett 60/40 equity/bond exposure as I dont have to fund full 40% bonds/gilts. My target aim for allocation is below fwiw. Obviously a target as 44% of a small growing etf with $3mill AUM is a worry until it establishes itself or is shut which is the risk, along with high inflation / higher interest rates going forward with bad bond/equity correlation.

Equity
44% wtef
11% iitu
11% vhvg

Gilts
15%

Macro
BHMG 3%

Managed futures / cta /trend
dunn / gaia bluetrend / winton trend 16%

This would give me nett with the bond leverage in wtef at 90/60

61.6% equity, 41.4 bond/gilts, 3%macro, 16% CTa's to total 122% so 1.22 effective portfolio leverage

Also i spoke to wisdomtree about the bond duration aimed for the fund ( which is the levagred bit using the 10% cash to buy bond futures to achieve a 60% bond allocation - 90% goes to buy normal s&p500 equity unleveraged )

They said,
The Index doesn’t have a target bond duration but has 5 bond futures being equally weighted and rolling and rebalancing quarterly. Due to each future contract having a minimum notional over $100k or $200k, when the fund size is small, it’s not feasible to hold all five contracts with equal weighting.

Therefore at present they have 4 bond futures noted as effective holdings

US 2YR NOTE (CBT) MAR24 XCBT 20240328 19.43%
US 10YR NOTE (CBT)MAR24 XCBT 20240319 17.59%
US LONG BOND(CBT) MAR24 XCBT 20240319 11.43%
US 10YR ULTRA FUT MAR24 XCBT 20240319 10.95%

Lastly someone somewhere mentioned about dividend income from the s&p equity holding - they thought it derived from 60% of the investment. I believe they misunderstood the leverage which is only on the bond side so I think dividend is on 90% of the fund allbeit that a ESG screen has reduced the equity holdings from 500 to 450 and probably some of the missing ones contributed high dividends think tobacco type like in the UK.

Wisdomtree said
We believe 90% of assets in Equity (instead of 100%) would be the reason that the portfolio is showing a lower dividend yield. The ESG screen would reduce the number of companies in the Index from 500 to 450 roughly. But the ESG screen doesn’t have much impact on the dividend yield.