One of the foundational challenges in asset allocation is the trade-off between long-term return potential and short-term drawdown risk. For decades, the 60/40 portfolio served as a pragmatic answer, a middle path between equity growth and bond ballast. But as macroeconomic regimes shifted and correlations between stocks and bonds evolved, that framework began to feel more like a blunt instrument than a precision tool.¹ At WisdomTree, the Efficient Core concept was built from the ground up to rethink this balance. Instead of combining full allocations to equities and bonds, Efficient Core strategies embed the diversification power of Treasuries directly into the equity sleeve through the use of a Treasury futures overlay. This preserves the return profile of equities while subtly reshaping the risk profile, less like chopping up a portfolio and more like engineering a more capital-efficient chassis.

The key intuition is simple but powerful: over time, intermediate U.S. Treasuries tend to exhibit a negative or low correlation to equity markets, especially during periods of stress.² Embedding that diversifier into the core of an equity exposure can reduce volatility and improve risk-adjusted returns without asking investors to give up equity beta or alter their broader allocation goals. And because the strategy is delivered through a single exchange-traded fund (ETF), investors gain access to both sides, equity exposure and fixed income diversification, within a highly transparent, tax-aware and liquid structure. The result isn't just a different mix of assets. In our opinion, it's a more efficient use of capital, freeing up room elsewhere in the portfolio to take on complementary exposures, whether that's alternatives, real assets or high-conviction strategies with potential to generate alpha.

This framework isn't just theoretical. It's already being applied across geographies, including international developed markets. That's where the WisdomTree International Efficient Core Fund (NTSI) comes into focus. Many investors are under-weight in international equities, not because they doubt the case, but because the volatility and drawdown behavior of markets benchmarked to the widely followed MSCI EAFE Index have historically made them harder to hold through full cycles. By applying the Efficient Core lens, 90% international equity exposure (500 large market capitalization stocks) paired with a 60% overlay of U.S. Treasury futures, NTSI is a solution that maintains international equity participation while delivering a potentially more tempered volatility experience.

The Catalyst to Look at International EquitiesRelative to U.S. Equities

After years of underperformance and persistent valuation discounts, international equities are suddenly back in the spotlight. Investors in mid-2025 are increasingly revisiting global allocations for two compelling reasons: first, international stocks continue to trade at a steep valuation gap relative to U.S. equities, with a forward P/E discount exceeding 34.6%, far below the long-term median (as seen in figure 1a); second, performance momentum has shifted this year, with non-U.S. markets outperforming the U.S. by almost 11% year-to-date (as seen in figure 1b). This rare combination of structural undervaluation and emerging performance leadership is prompting a critical question: Is this the start of a durable rotation or just a countertrend rally in a long-running U.S. equity dominance cycle?

Figure 1a: The Great Valuation Divergence: U.S. vs. ex-U.S. Equities as of Mid-2025

Figure 1b: Is This the Start of Global Equity Performance Rotation or Just a Breather?

In short, this creates the backdrop that makes NTSI more interesting.

Evaluating the Performance of Multi-Asset Strategies

However, evaluating performance introduces a nuanced challenge. Traditional equity benchmarks such as the MSCI EAFE Index, while widely used for international exposure, fall short in capturing the dual-asset nature of NTSI. Because EAFE is 100% equities, it does not account for the fixed income component that plays a crucial role in NTSI's risk-return profile. To address this, we constructed a blended exposure using allocations to both the iShares MSCI EAFE ETF (EFA) and the iShares U.S. Core Aggregate Bond ETF (AGG). This composite provides an important 60/40 international equity to U.S. fixed income reference point.

Why this SPECIFIC blend?

• iShares MSCI EAFE ETF (EFA): This is the largest ETF, by assets under management, that is tracking the total return performance, before fees, of the MSCI EAFE Index. The MSCI EAFE Index is a closely followed benchmark among U.S. investors who are seeking to look at how developed international equities are doing.
• iShares U.S. Core Aggregate Bond ETF (AGG): This is the largest ETF, by assets under management, that is tracking the total return performance, before fees, of the Bloomberg U.S. Aggregate Bond Index. For U.S. investors looking at the returns of investment-grade, U.S. fixed income, this is the most widely followed index.

Figure 2: Standardized Return

In figure 3, we see:

• Near-Term Strength in Equities: In the year-to-date and one-year periods, the MSCI EAFE Index outperforms both NTSI and the 60/40 EFA/AGG blend, reflecting the strength of pure equity beta in recent market conditions, particularly in developed international markets.
• Since Inception Trade-off: Since NTSI's inception in May 2021, performance is very similar to the 60/40 blend.

Figure 3: Efficient Core Exposure in a World of Inefficient Comparisons

What Is the Global Moderately Aggressive Allocation Category?

In 2025, Morningstar transformed the way global allocation strategies are classified, replacing the old, inconsistent "World Allocation" bucket with five risk-calibrated categories based on equity-like volatility.³ The Global Moderately Aggressive Allocation group now serves as a clear benchmark for strategies targeting long-term volatility equivalent to a 70%–85% global equity portfolio. These funds are no longer loosely diversified vehicles; they're structured, globally diversified and risk-banded systems requiring exposure across multiple asset classes and geographies, with U.S. assets capped at 75%.⁴ Most portfolios land at roughly three-quarters equity, making them ideal for long-horizon investors seeking disciplined global participation with embedded risk controls. Crucially, the value lies not in tactical positioning, but in the clarity of the strategic architecture: defined volatility targets, enforced global mandates and better-aligned benchmarks now enable allocators to evaluate these strategies with sharper precision, on terms like downside capture and capital efficiency, bringing rigor and comparability to what was once a murky segment.

In figure 4, we see:

• Competing with the Big Leagues: Within the full Global Moderately Aggressive Allocation category, dominated by nearly 200 mostly actively managed mutual funds, NTSI ranks in the top decile year-to-date—beating 96% of peers—and in the top third over one year. This shows it can compete head-to-head with complex, often more expensive, multi-asset strategies.
• Dominating the Small, More Limited ETF Subset: Among ETFs in the same peer group, NTSI isn't just competitive, it's dominant. It ranks #1 across some periods, beating 100% of its ETF peers year-to-date and over one year, underscoring its leadership in a space where index-based and rules-based strategies are gaining traction, but product breadth remains limited.

Figure 4: Standing Out in Two Worlds: NTSI vs. Active Funds and the ETF Peer Set

Conclusion: A Smarter Core for Global Exposure

NTSI is helping to redefine what a global core allocation can be, combining equity-like return potential with structural balance across regions and asset classes. In a category long cluttered with inconsistent strategies, NTSI stands out for its clarity, discipline and results. It competes head-to-head with traditional mutual funds and leads among ETFs, offering a thoughtfully constructed portfolio that doesn't rely on heavy U.S. tilts or tactical guesswork. For investors seeking long-term global growth in a cleaner, more transparent format, NTSI offers not just diversification but direction.

Figure 5: Additional Information

¹ Source: L. Swinkels, R. Molenaar, E. Sénéchal and Z. Wang, "New research into the stockbond correlation shows when they correlate – and when they don't" (Robeco Insights), Robeco, April 2024.

² Source: "Correlation anxiety and the reality of diversification," SEI, 2024.

³ Source: "Morningstar category changes – April 30 2025" [FAQ document], Morningstar, 4/30/25.

⁴ Source: "Morningstar category changes – April 30 2025" [FAQ document], Morningstar, 4/30/25.