Positioning WisdomTree Model Portfolios for 2025
Published January 10, 2025
Joe Tenaglia, CFA, CMT
Director, Model Portfolios
Andrew Okrongly, CFA
Director, Model Portfolios
Joe Tenaglia, CFA, CMT
Director, Model Portfolios
Key Takeaways
- Leaning into U.S. equities: We remain bullish on U.S. stocks and are focused on capturing diversification and upside through value strategies that emphasize shareholder yield and profitability metrics.
- Targeted exposures in international equities: Outside the U.S., we are over-weight in Japan and India but under-weight in broader developed and emerging markets.
- Fixed income refinements: We maintain a neutral duration stance with over-weight exposure in quality-screened corporate credit and agency mortgage-backed securities.
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Positioning Portfolios for Q1 2025
As we begin 2025, WisdomTree's ETF Model Portfolios are positioned to address macroeconomic challenges while also capitalizing on global market opportunities. Here's a detailed breakdown of our strategic views across asset classes:
Equity Allocations
We have over-weight allocations to equities relative to bonds and see several reasons to remain bullish on large-cap U.S. stocks: a resilient labor market, a continued disinflationary trend, AI optimism and strong corporate earnings driven by a favorable economic outlook, deregulation and tax cuts. We are prioritizing companies with strong profitability, high return on equity and robust total shareholder yield.
Many have pointed to earnings multiples, which are elevated relative to longer-term historical levels. While we agree this creates higher downside risks, the current growth sector and high-quality makeup of the U.S. market may justify a higher multiple. As seen in figure 1 below, the sector profile of the S&P 500 Index has seen a significant shift from value-oriented sectors (financials and energy) to technology companies. In our view, this context is necessary as historical comparisons may be overstating today's valuations.
Figure 1: Sector Weights of S&P 500 Index
Source: WisdomTree, FactSet; as of 12/18/24. You cannot invest directly in an index.
Furthermore, while we do not see a bubble in mega-cap tech, we believe there are ample opportunities to diversify from highly concentrated market cap-weighted indexes. For example, value stocks are priced at a significant discount to growth stocks and may benefit from potential shifts in both fiscal and monetary policy.
Outside the U.S., Japan remains a focal point within developed markets. Its accommodative monetary policies, coupled with corporate reforms emphasizing shareholder returns, bolster its appeal. Meanwhile, as seen in figure 2, India stands out in emerging markets with its world-leading earnings growth and demographic tailwinds that should support income and consumption going forward.
Figure 2: Weighted Average Earnings Growth in India, China, U.S.
Sources: WisdomTree, MSCI, as of 12/18/24. You cannot invest directly in an index.
Fixed Income Allocations
Expecting a highly data dependent Fed, we have a neutral duration stance relative to benchmarks. Figure 3 below demonstrates corporate credit spreads have tightened significantly in recent quarters, with investment-grade spreads at levels last seen in the 1990s and high-yield spreads reaching 2007 levels.
Figure 3: Spreads (Basis Points) on IG (LHS) and HY (RHS) Corporate Bonds
Source: Bloomberg, WisdomTree, as of 12/18/24. Spreads are option adjusted spread (OAS). Investment-grade corporate represented by the Bloomberg US Corporate Index. High-yield corporate represented by the Bloomberg US Corporate High Yield Bond Index. You cannot invest directly in an index.
While these credit spreads levels are hardly anything to get excited about, all-in yields remain attractive and issuer fundamentals have recently stabilized at still healthy levels. Therefore, we are maintaining our neutral exposure to quality-screened credit while being over-weight in agency mortgage-backed securities. This large, liquid, high-quality asset class stands to benefit from declining rate volatility, historically attractive spreads relative to investment-grade corporates and an improving supply/demand environment.
Efficient Core and Alternatives
To enhance portfolio diversification, we recommend efficient core strategies that combine equity and bond exposures, freeing up capital for alternative investments. Liquid alternative strategies, such as trend-following and managed futures, offer uncorrelated returns and can mitigate risk in periods of heightened volatility. These strategies are particularly valuable if stock-bond correlations remain in positive territory.
Final Thoughts
We believe 2025 will present a unique mix of challenges and opportunities for long-term investors. Elevated valuations and geopolitical complexities demand a disciplined investment approach. By emphasizing exposures that we feel offer compelling risk/reward trade-offs across asset classes, WisdomTree's strategic ETF Model Portfolios are built to navigate uncertainty while capitalizing on global trends. Our balanced and forward-looking strategies help equip advisors to achieve long-term success for their clients in an evolving market landscape.
For more 2025 investing insights, check out our 2025 Economic & Market Outlook.
Important Risks Related to this Article
For financial advisors: WisdomTree Model Portfolio information is designed to be used by financial advisors solely as an educational resource, along with other potential resources advisors may consider, in providing services to their end clients. WisdomTree’s Model Portfolios and related content are for information only and are not intended to provide, and should not be relied on for, tax, legal, accounting, investment or financial planning advice by WisdomTree, nor should any WisdomTree Model Portfolio information be considered or relied upon as investment advice or as a recommendation from WisdomTree, including regarding the use or suitability of any WisdomTree Model Portfolio, any particular security or any particular strategy.
For retail investors: WisdomTree’s Model Portfolios are not intended to constitute investment advice or investment recommendations from WisdomTree. Your investment advisor may or may not implement WisdomTree’s Model Portfolios in your account. The performance of your account may differ from the performance shown for a variety of reasons, including but not limited to: your investment advisor, and not WisdomTree, is responsible for implementing trades in the accounts; differences in market conditions; client-imposed investment restrictions; the timing of client investments and withdrawals; fees payable; and/or other factors. WisdomTree is not responsible for determining the suitability or appropriateness of a strategy based on WisdomTree’s Model Portfolios. WisdomTree does not have investment discretion and does not place trade orders for your account. This material has been created by WisdomTree, and the information included herein has not been verified by your investment advisor and may differ from information provided by your investment advisor. WisdomTree does not undertake to provide impartial investment advice or give advice in a fiduciary capacity. Further, WisdomTree receives revenue in the form of advisory fees for our exchange-traded Funds and management fees for our collective investment trusts.
About the contributors
Joe Tenaglia, CFA, CMT
Director, Model Portfolios
Joe Tenaglia joined WisdomTree as Asset Allocation Strategist in 2016. He is responsible for building and managing WisdomTree’s CIO-managed and custom model portfolios. In this role he focuses on asset allocation, security selection, and portfolio construction for the firm’s open architecture models, with objectives ranging from strategic to tactical. Joe sits on WisdomTree’s Model Portfolio Investment Committee, which oversees the firm’s ETF models and helps shape and communicate WisdomTree’s thoughts on the markets. Prior to joining WisdomTree, he held roles at Emerging Global Advisors (acquired by Columbia Threadneedle) and BNY Mellon. Joe received his B.S. in Finance and Marketing from Boston College. He is a holder of both the Chartered Financial Analyst designation and Chartered Market Technician designation.
Andrew Okrongly, CFA
Director, Model Portfolios
Andrew Okrongly joined WisdomTree in 2022 as a Director on the Model Portfolios Team. He is responsible for the design and ongoing management of model portfolios and custom solutions for portfolio managers and advisors. Andrew is also a member of the Model Portfolio Investment Committee. Prior to joining WisdomTree, Andrew was a Director on the Outsourced Chief Investment Officer (OCIO) team at Commonfund, where he was responsible for macro-economic analysis and advising institutional clients on strategic and tactical asset allocation. Andrew began his career at BlackRock where he held a variety of fixed income and multi-asset investment roles. Andrew received a BBA degree from the University of Michigan and is a holder of the Chartered Financial Analyst designation.
Joe Tenaglia, CFA, CMT
Director, Model Portfolios
Joe Tenaglia joined WisdomTree as Asset Allocation Strategist in 2016. He is responsible for building and managing WisdomTree’s CIO-managed and custom model portfolios. In this role he focuses on asset allocation, security selection, and portfolio construction for the firm’s open architecture models, with objectives ranging from strategic to tactical. Joe sits on WisdomTree’s Model Portfolio Investment Committee, which oversees the firm’s ETF models and helps shape and communicate WisdomTree’s thoughts on the markets. Prior to joining WisdomTree, he held roles at Emerging Global Advisors (acquired by Columbia Threadneedle) and BNY Mellon. Joe received his B.S. in Finance and Marketing from Boston College. He is a holder of both the Chartered Financial Analyst designation and Chartered Market Technician designation.