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As investors prepare for the incoming Trump administration, they might be looking to refresh exposures for positions that might benefit from shifting policies, be it trade-, regulatory- or tax-related.

In this article, we explore a complementary 50/50 U.S. equity portfolio combination that includes a large-cap growth ETF with a well-diversified value strategy aiming to enhance core exposures.

The WisdomTree Value and Quality Growth Strategies

To create the 50/50 core blend, we look to two specific WisdomTree strategies:

• WisdomTree U.S. Quality Growth Fund (QGRW): The strategy seeks to track the total return performance of the WisdomTree U.S. Quality Growth Index, before fees and expenses. This market capitalization-weighted strategy focuses on 100 companies that deliver particularly strong earnings growth and quality fundamental metrics. As I’ve written about before, there is overlap between this strategy and the Nasdaq 100, but we believe in our more disciplined focus on selecting consistent quality growers instead of the venue where the stock has a primary listing for trading.
• WisdomTree U.S. Value Fund (WTV): The strategy seeks income and capital appreciation by investing primarily in U.S. equity securities that provide a high total shareholder yield with favorable relative quality characteristics. The Fund’s objective changed effective December 18, 2017. Prior to December 18, 2017, Fund performance reflects the investment objective of the Fund when it tracked the performance, before fees and expenses, of the WisdomTree U.S. LargeCap Value Index.

The combination of these two strategies, as visually represented in figure 1, leads to a strong balance of sector exposures, attractive fundamental metrics and, while limited, a nice performance history, which is demonstrated in the standardized performance shown in figure 2.

Figure 1: Envisioning the 50/50 Blend

Figure 2: Standardized Performance

2024: A Test

The U.S. equity market environment of 2024 has been very similar to that of 2023—putting more focus on larger companies has, for the most part, been the way to outperform the main benchmarks, such as the S&P 500 Index.

One drawback of simply following the momentum of large growth is that, ultimately, valuation matters. It may not drive the market downward in the near term, but long-term investors know risk builds as valuation multiples rise and set a higher hurdle to clear with each earnings report.

The 50/50 allocation to QGRW and WTV has managed to outperform the S&P 500 in 2024, as the cumulative returns show in figure 3.

Figure 3: Cumulative Returns in 2024

Rolling Returns to Test Consistency

In figure 4, we show that for rolling one-year periods, the 50/50 allocation to QGRW and WTV has outperformed the S&P 500 Index consistently since QGRW began trading in December 2022. Although it’s a limited history, what we do have so far looks consistent.

Figure 4: Rolling One-Year Returns for a Measure of Consistency

Big Sector Deviations Can Make Investors Nervous

The 50/50 WTV/QGRW combination delivered outperformance without being too “different” from the market from a sector perspective.

Figure 5 compares the sector exposures in the 50/50 QGRW/WTV portfolio versus the S&P 500 Index. There are subtle differences, but the 50/50 blend is not making massive sector bets versus the benchmark.

Figure 5: Sector Allocations vs. the S&P 500 Index

Managing the Risk of Overvaluation

The quote, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine,” has been attributed to Benjamin Graham.

While we don’t know exactly when a shifting regime will occur, we do know that, ultimately, valuations matter and can weigh on future returns.

The 50/50 allocation to QGRW and WTV balances exposures to premier growth stocks with the WTV value component of the strategy to mitigate the risk of seeing valuation metrics run up too high versus the S&P 500 Index benchmark. The combination yields a portfolio with lower overall valuations than the market due to the deep discounts in WTV holdings, which can be seen in figure 6.

Figure 6: Assorted Valuation Metrics

Shareholder Yield as a Measure of Quality

One path unprofitable companies use to stay afloat is the issuance of equity during growth modes. Small stocks, such as those in the Russell 2000 Index, exemplify this.

Profitable companies, on the other hand, have a choice in returning cash to shareholders—some choose dividends, and others choose buybacks. In the U.S. market, a lot of the largest, most profitable companies like share buybacks because executives tend to have option-based compensation.

Buybacks are also much easier to think of on a one-time basis, whereas dividends culturally create a future unending covenant with shareholders.

WTV has a direct focus on companies that are reducing shares outstanding through buybacks. Figure 7 shows us that the 50/50 allocation to QGRW and WTV has a very similar dividend yield to the S&P 500 Index, but the share reduction yield is more than three times higher.

Figure 7: A Focus on Shareholder Yield

Top 10 Holdings: Connecting the Strategy Back to Companies

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Figure 7 shows both the 50/50 allocation to QGRW and WTV and the S&P 500 Index have exposure to the Magnificent 7 stocks within the top 10 at similar weights.

Nine of the top 10 holdings are actually the same. AppLovin is the one stock the 50/50 blend brings into the top 10 relative to the S&P 500 Index, which instead has exposure to Berkshire, and this was because of very strong performance within WTV over the last year. These specific company exposures could change as the WisdomTree Funds rebalance in December, but our anticipation is that there will remain a high overlap.

Figure 8: Top 10 Holdings Similar to the S&P 500 Index

Conclusion: Value and Growth as Opposed to Value OR Growth

As you look toward 2025 and wonder whether value or growth will have the potential to run, we’d simply note that the discussion can very easily shift to value and growth from value or growth. This combination created a better core, and we believe it has attractive characteristics to continue adding value.