ETF Model Portfolios: Putting Our Money Where Our Mouth Is

Associate, Asset Allocation
12/20/2019

This article is relevant to financial professionals interested in model portfolios. WisdomTree ETF model portfolios are available only to financial professionals, through various portfolio platforms.

It’s that time of year again. The holidays are rolling in, and e-mail stockings are getting stuffed with year-end 2020 market predictions.

Will stocks have a positive year? Is the bull run for bonds over? These questions and many more get asked by your favorite asset managers, strategists and industry experts.

But this is not one of those articles. Today I want to make the case for how advisors can utilize the model portfolios published by asset managers and strategists as an additional source of asset allocation views.

How Advisors Can Utilize Model Portfolios in Their Practice

The first step is to access the model portfolio’s allocations, whether that be from a website, fact sheet, presentation deck or other means. The next step is for an advisor to understand what is most important for them to make a decision on, such as the model portfolio’s investment objective, holdings, rebalance frequency, ability to make active bets and other nuances.

You also want to drill down on the benchmark. What’s the asset class mix of equity versus fixed income versus alternatives when applicable? Is it static or dynamic, based on market conditions?

Even within different asset classes, it’s important to understand the base case of sector and geographical exposures. If you don’t understand how the model is tactically positioned relative to its benchmark today, you will have a hard time reading into the rebalancing changes going forward. The last step is to be abreast of rebalancing changes that can occur periodically.

The initial due diligence mentioned above isn’t as daunting as it may seem. In fact, many managers and model sponsors can help advisors obtain this information with ease.

As an example, WisdomTree’s website has a page dedicated specifically to our proprietary ETF model portfolios. Utilizing this resource can provide concrete answers for some of asset allocators’ most difficult questions, such as:

  • What percentage of a “Moderate” model portfolio should be allocated to U.S. equities versus abroad?
  • Does it make sense to have dedicated emerging markets (EM) exposure?
  • Should I allocate toward small caps? What about small caps outside of the U.S.?
  • What factors make sense to tilt toward in today’s market environment?
  • How much high yield exposure should I have within a fixed income allocation?
  • How do I complement my core beta exposure utilizing WisdomTree ETFs in “less efficient” areas of the market?
  • Where do I source equity income in a low interest rate environment?

There are a lot of reasons advisors have been attracted to utilizing third-party model portfolios, such as the ability to scale their practice or tap into a firm’s global research team. I believe even non-model users can benefit from referencing model portfolios, as they can assist in asset allocation decisions.

The jury might still be out on who made the right calls in 2019, but I’m looking forward to seeing a range of market calls for 2020.

If there’s one thing that’s certain, it’s that when the information comes from strategists and managers who publish their model portfolios, you’re getting a real sense of who’s putting their money where their mouth is.

Important Risks Related to this Article

This content is for information only and is not intended to provide, and should not be relied on for, tax, legal, accounting, investment or financial planning advice by WisdomTree, nor should it be considered or relied upon as a recommendation by WisdomTree regarding the use or suitability of any model portfolio or any particular security. This content is intended for use only by a financial advisor as a resource in the development of a portfolio for the financial advisor’s clients. The financial advisor is solely responsible for making investment recommendations and/or decisions with respect to its clients without input from WisdomTree, including with respect to investing in accordance with any model portfolio or any particular security. WisdomTree is not acting in an investment advisory, fiduciary or quasi-fiduciary capacity to any financial advisor or its client and is not providing individualized investment advice to any financial advisor or its client based on or tailored to the circumstances of any individual financial advisor or its individual client.

This content has been prepared without regard to the individual financial circumstances and objectives of any investor, and the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investors and their advisors should consider the investor’s individual financial circumstances, investment time frame, risk tolerance level and investment goals. Investors should consult with their own advisors before engaging in any transaction. Using an asset allocation strategy does not ensure a profit or protect against loss, and diversification does not eliminate the risk of experiencing investment losses. There is no assurance that investing in accordance with a model portfolio’s allocations will provide positive performance over any period. The model portfolios are provided “as is,” without any warranty of any kind, express or implied. Information and other marketing materials provided to you by WisdomTree or any third party concerning a WisdomTree model portfolio, including allocations, performance and other characteristics, may not be indicative of an investor’s actual experience from an account managed in accordance with a model portfolio’s strategy.

This content, and any assistance provided as described herein, including portfolio construction and asset allocation stress testing, assessments, discussions, output or other assistance (whether by WisdomTree personnel or digital tools) (the “Assistance Tools”) are for information only and no material or Assistance Tools are intended to provide, and should not be relied on for, tax, legal, accounting, investment or financial planning advice. This content and the Assistance Tools are intended for use only by a financial advisor as a resource in the development of a portfolio for the financial advisor’s clients.

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About the Contributor
Associate, Asset Allocation

Ryan Krystopowicz joined WisdomTree in March 2016 as a member of the Distribution Team and has transitioned over to the Asset Allocation Team as a Product Specialist, ETF Model Portfolios.  He is responsible for maintaining and delivering data and content associated with WisdomTree Model Portfolios.  Ryan also supports model development and decisions, as well as contributes to the commercial success of Model Portfolios by supporting the sales and client solutions team.  He started his career at a Registered Investment Advisor working as Research Analyst and Assistant Trader. Ryan received a degree from Loyola University of Maryland and is a holder of the Chartered Financial Analyst designation.