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A New ETF in Market Promises Diversification

At a time when investors are growing increasingly wary about an impending stock market crash on trade war tensions and rising rate risks, only a few alternative assets or multi-strategy ETFs appear safe bets.

The Fed has been steadily raising rates and the U.S.-Sino trade war clash is showing no signs of abatement.In such a situation, a smart multi-strategy approach would go a long way to protect investors’ money.

Probably having sensed that, Wisdomtree introduced a fund in the multi-strategy ETF space recently. The fund trades under the name of WisdomTree 90/60 U.S. Balanced Fund with the ticker symbol of NSTX.

Inside NSTX

The fund invests 90% of its net assets in the 500 largest U.S. equities by market cap. And 10% in cash posted as collateral for 60% notional exposure to U.S. Treasury futures. If the fund shifts from the targeted 90% Equity and 60% U.S. Treasury allocations by 5%, it will be rebalanced back to target allocations, per wisdomtree.com.

The portfolio considers laddered approach in selecting 2, 5, 10, & 30-year Treasury futures contracts to lower interest rate risk. Apple Inc (4.33%), Microsoft Corp (3.43%) and Amazon.com Inc (3.13%) are the top three stock holdings of the fund. The fund charges 20 bps in fees (read: Cheapest ETFs in Focus as Fee War Heats Up).

How Does It Fit in a Portfolio?

NSTX could be an interesting choice for those who are seeking to reduce volatility in the market as well as witness some capital appreciation. The issuer noted that alternatives (such as alpha seeking / uncorrelated assets / hedge funds replication strategies) also help investors beat market volatility but fetch lower absolute returns and substantiated the fact with the chart below.

 

The wisdom of 60/40 portfolios is being questioned “due to low bond yields and the challenging outlook for fixed income returns.” WisdomTree research found that a 90/60 Strategy boosts the familiar characteristics of a traditional 60/40 Equity and Bond portfolio.           

ETF Competition

There are a lot of multi-asset ETFs, each with a different investment objective. Some of the top-grossing ETFs are Pacer Trendpilot US Large Cap ETF PTLC, iShares Core Growth Allocation ETF AOR, iShares Moderate Allocation ETF AOM, iShares Core Aggressive Allocation ETF AOA, First Trust Multi-Asset Diversified Income Index Fund MDIV, iShares Core Conservative Allocation ETF AOK and DeltaShares S&P 500 Managed Risk ETF DMRL (see all Total Portfolio ETFs here).

None of the funds charges lower than equal to 20 bps. Expense ratios of these funds range from 25 bps to 79 bps. From this context, the newly-launched fund should see success in garnering investors’ funds.

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