Managed Futures for Diversification within Our Siegel-WisdomTree Longevity Model Portfolio
The Siegel-WisdomTree Longevity Model Portfolio was launched in 2019 as a collaboration with our Senior Investment Strategy Advisor, Dr. Jeremy Siegel, Professor of Finance at Wharton School.
The portfolio is designed to challenge the traditional 60/40 allocation approach by attempting to improve the current income generation and better manage longevity risk as people live longer and spend more years in retirement.
Since their addition to the Longevity Model Portfolio throughout 2020 and 2021, both alternative investments have been valuable sources of diversification and excess returns.
Cumulative Returns of 60/40, Trend and Commodities from 12/31/21–3/31/23
For definitions of terms/indices in the charts above, please visit the glossary.
As part of our March 2023 Model Portfolio rebalance, we increased our target allocation to managed futures within the Siegel-WisdomTree Longevity Model Portfolio, funding the trade from commodities.
So why the focus on managed futures going forward?
Managed futures strategies, sometimes referred to as commodity trading advisors (CTAs), seek to achieve positive total returns that are not directly correlated to traditional equity and fixed income markets.
They do this using long and short positions in futures contracts across different markets to capture rising and falling price trends. Effective trend strategies have been able to deliver this outcome across market cycles, even during downturns for traditional investments.
While inflation may be in the process of cooling from its peak, volatility has remained elevated in 2023, particularly in the interest rate market.
Equity Interest Rate, FX Volatility
Moreover, as the underlying source of market uncertainty potentially shifts from inflationary woes to recession concerns, we are focused on diversifying strategies that have historically delivered uncorrelated returns in down markets.
Since 2000, trend-following strategies have done just that—delivering positive excess returns above the S&P 500 Index in periods when U.S. equities have struggled.
Monthly SG Trend Index Returns since 2000
In terms of implementation, the WisdomTree Managed Futures Strategy Fund (WTMF) provides a liquid, cost-effective vehicle for accessing a managed future strategy in the ’40 Act structure with no K-1 filings, redemption fees, sales loads or investment minimums.
The Fund is rebalanced monthly using a quantitative, rules-based strategy that aims to capture price trends across commodity, currency, equity and rates markets.
While many trend-following strategies have struggled in the first quarter of 2023 after a positive 2022 calendar year, WTMF has delivered positive returns YTD through March 31, 2023.
WisdomTree Managed Futures Strategy Fund (WTMF) Performance
For the most recent month-end performance, click here.
For definitions of terms/indices in the charts above, please visit the glossary.
Our conviction in equities as the primary driver of long-term portfolio growth is unwavering. However, we do expect volatility across asset classes to remain elevated in the near term.
The ability to provide diversification when traditional asset classes are struggling underpins our focus on managed futures within the Longevity Model Portfolio.
For investors searching for a liquid, efficient trend-following strategy with a proven track record, we believe that the WisdomTree Managed Futures Strategy Fund (WTMF) deserves consideration.
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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.
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There are risks associated with investing, including the possible loss of principal. An investment in this Fund is speculative, involves a substantial degree of risk and should not constitute an investor’s entire portfolio. One of the risks associated with the Fund is the complexity of the different factors that contribute to the Fund’s performance, as well as its correlation (or non-correlation) to other asset classes. These factors include the use of long and short positions in commodity futures contracts, currency forward contracts, swaps and other derivatives. Derivatives can be volatile and may be less liquid than other securities and more sensitive to the effects of varied economic conditions. In addition, bitcoin and bitcoin futures are a relatively new asset class. They are subject to unique and substantial risks and, historically, have been subject to significant price volatility. While the bitcoin futures market has grown substantially since bitcoin futures commenced trading, there can be no assurance that this growth will continue. The Fund should not be used as a proxy for taking long-only (or short-only) positions in commodities or currencies. The Fund could lose significant value during periods when long-only indexes rise or short-only indexes decline. The Fund’s investment objective is based on historical price trends. There can be no assurance that such trends will be reflected in future market movements. The Fund generally does not make intramonth adjustments and therefore is subject to substantial losses if the market moves against the Fund’s established positions on an intramonth basis. In markets without sustained price trends or markets that quickly reverse or “whipsaw,” the Fund may suffer significant losses. The Fund is actively managed; thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio manager. Due to the investment strategy of this Fund, it may make higher capital gain distributions than other ETFs. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.
Brian Manby joined WisdomTree in October 2018 as an Investment Strategy Analyst. He is responsible for assisting in the creation and analysis of WisdomTree’s model portfolios, as well as helping support the firm’s research efforts. Prior to joining WisdomTree, he worked for FactSet Research Systems, Inc. as a Senior Consultant, where he assisted clients in the creation, maintenance and support of FactSet products in the investment management workflow. Brian received a B.A. as a dual major in Economics and Political Science from the University of Connecticut in 2016. He is holder of the Chartered Financial Analyst designation.