For decades, portfolio construction has revolved around a simple constraint: you have 100% of a total allocation, and every new addition requires taking a portion from somewhere else. That constraint has shaped the dominance of 60/40 portfolios and the difficulty of incorporating alternatives without sacrificing expected return.

Introducing WisdomTree’s Efficient Capital Framework

To provide asset allocators with a way around this issue, WisdomTree’s Efficient Capital framework launched in 2018 with the debut of the WisdomTree U.S. Efficient Core Fund (NTSX).

NTSX represented the practical implementation of an idea that had largely lived in institutional portfolios and academic journals for decades. By combining a 90% allocation to U.S. equities with a 60% exposure to U.S. Treasury futures, the strategy delivered approximately 150% notional exposure, effectively recreating a traditional 60/40 portfolio, doing so more efficiently, using less capital for the same notional exposure.

The innovation wasn’t leverage for its own sake. It was about solving a structural inefficiency in portfolio construction, thereby freeing up capital without giving up core exposures.

In doing so, NTSX marked a shift from thinking in terms of capital allocation to thinking in terms of exposure construction.

This leads to a fundamentally different question:

Not: what do we remove to add something new?

But: what can we add, once we separate capital from exposure? This is the second of three articles where we will introduce this efficient capital concept and then explore a particular option that could be added with the extra space.

Filling the Gap: Why Managed Futures Belong in an Efficient Portfolio

We believe that one of the most compelling uses of that newly created portfolio “space” could be managed futures, an asset class designed to behave differently when traditional assets struggle.

At their core, managed futures strategies (often implemented by Commodity Trading Advisors, or CTAs) systematically trade futures across equities, rates, currencies and commodities, going both long and short to capture persistent market trends. This flexibility is critical. Unlike traditional assets, these strategies are not dependent on markets going up, and they are designed to extract returns from movement itself.

The empirical case is well established. A large body of academic and practitioner research has shown that managed futures, particularly systematic trend-following strategies, have historically exhibited low or even negative correlation to traditional asset classes like stocks and bonds.¹

Since these strategies can go both long and short across global markets, they tend to perform best during sustained market moves, including during periods of stress. Research from AQR and others has demonstrated that trend-following strategies have delivered positive returns with ‘little correlation to traditional asset classes’ and often performed strongest during extreme equity market environments.²

This dynamic is often referred to as ‘crisis alpha,’ a term popularized following the Global Financial Crisis to describe the tendency of managed futures to generate returns during equity drawdowns. Empirical studies confirm that CTAs can provide meaningful diversification benefits specifically during crisis periods, helping offset losses elsewhere in a portfolio.³

Importantly, this comes at a time when traditional diversification has become less reliable. In periods of market stress, correlations across equities and even between stocks and bonds tend to rise, reducing the effectiveness of conventional portfolios. In that context, a strategy designed to thrive on dispersion and trends, rather than static allocations, becomes especially valuable.

This is where the WisdomTree Managed Futures Strategy Fund (WTMF) fits within the Efficient Capital framework. WTMF implements a quantitative, rules-based approach to capturing price trends across global markets through long and short futures positions, seeking positive returns in both rising and falling environments.

In effect, if Efficient Core frees up space, managed futures offer a way to fill it with something structurally different—a return stream driven not by direction but by dynamics.

From Trade-Off to Addition: A New Way to Add Managed Futures

To make this more tangible, we can compare three ways of incorporating managed futures into a portfolio, but first, we must define our different ETF building blocks.

• IVV: The iShares Core S&P 500 ETF , which is designed to track, before fees and expenses, the total return performance of the S&P 500 Index, the most widely followed and referenced benchmark for U.S. equity market performance. This strategy is among the largest by assets under management tracking this benchmark.
• AGG: The iShares Core U.S. Aggregate Bond ETF , which is designed to track, before fees and expenses, the total return performance of the Bloomberg U.S. Aggregate Bond Index. This is among the most widely followed measures of the performance of U.S. investment grade fixed income.
• NTSX: As described previously, this strategy incorporates 90% notional exposure to U.S. equities and 60% notional exposure to U.S. fixed income futures, for a total notional exposure of 150%. It is a portfolio tool designed to help investors free up allocation space to add in other asset classes that may have different portfolio characteristics.
• WTMF: As described previously, this strategy implements a quantitative, rules-based approach to capturing price trends across global markets through long and short futures positions, seeking positive returns in both rising and falling environments.

In Figure 1, the starting point is the ‘traditional 60/40’, 60% equities (IVV) and 40% fixed income (AGG). This serves as a familiar baseline, with 100% total notional exposure split between stocks and bonds.

From there is the ‘traditional allocation to managed futures’ approach, which introduces commodities by reallocating capital: 50% equities, 30% bonds and 20% managed futures (WTMF). This maintains 100% total exposure but requires reducing core equity and bond allocations to make room for the diversifier, in this case, managed futures.

The ‘Efficient Allocation to Managed Futures’ takes a different path.

Overall, the idea is to keep the 60% U.S. equities and 40% U.S. fixed income parts of the allocation intact, but to then add commodities over the top. Figure 1 shows how placing:

• 24% in IVV
• 40% in NTSX
• 16% in AGG
• 20% in WTMF

Leads to notional exposures of 60% U.S. equities, 40% U.S. fixed income and 20% managed futures.

This is the key distinction. The investor keeps the original allocation and adds a potential diversifier over the top.

Figure 1: Adding vs. Replacing: How Efficient Capital Changes the Allocation

Looking at realized performance, the key question is whether this more efficient structure has actually translated into better outcomes.

Over the available live history of the current strategy, the Efficient Allocation to Managed Futures, has generally delivered stronger returns than both the Traditional Allocation to Managed Futures and the Traditional 60/40. Over the past year, the Efficient Allocation to Managed Futures returned 27.9%, compared to 24.5% for the Traditional Allocation to Managed Futures and 23.6% for the traditional 60/40. Over three years, it again led at 14.2%, versus 13.2% and 13.4%, respectively.

Even in more challenging environments, such as the current year-to-date period, the Efficient Allocation to Managed Futures delivered 0.3%, which was comparable to the Traditional Allocation to Managed Futures (0.8%), and ahead of the Traditional 60/40 (-0.2%).

Figure 2a: Turning “Extra Space” into Returns: The Impact of Efficient Capital

Figure 2b: Standardized Performance

Conclusion: What If a Managed Futures Allocation Didn’t Require a Trade-Off?

At its core, this is a shift in how portfolios are built. Managed futures offer a differentiated return stream, one that can diversify traditional assets and potentially add resilience during periods of stress. The challenge has always been implementation: how to incorporate that diversification without sacrificing core exposures.

Efficient Capital changes that equation.

By separating exposure from capital, investors are no longer forced into zero-sum trade-offs. Instead of replacing equities or bonds, they can add new sources of return alongside them. The result is a more flexible, more complete portfolio—one designed not just to participate in markets but to adapt to them.

Figure 3: Additional Information

1. Source: Lo, A. W., & Pedersen, L. H. (2014). Demystifying managed futures. Journal of Investment Management, 12(3), 42–58.
2. Source: Hurst, B., Ooi, Y. H., & Pedersen, L. H. (2017). A century of evidence on trend-following investing. The Journal of Portfolio Management, 44(1), 15–29.
3. Source: CME Group. (n.d.). Managed futures research digest.

Source: Lo, A. W., & Pedersen, L. H. (2014). Demystifying managed futures. Journal of Investment Management, 12(3), 42–58.

Source: Hurst, B., Ooi, Y. H., & Pedersen, L. H. (2017). A century of evidence on trend-following investing. The Journal of Portfolio Management, 44(1), 15–29.

Source: CME Group. (n.d.). Managed futures research digest.