WisdomTree’s Strategic Model Portfolios are intended to be exactly what they are called: strategic. In a typical year, the Model Portfolio Investment Committee (MPIC) initiates between four to six trades in the models, and in some years even fewer, because rebalancing is driven strictly by market conditions rather than by any preset calendar cadence. The objective is to adjust the portfolios as market conditions evolve to the point where they change the risk-reward profile of key factors, styles or regions.

The first four months of 2026 have presented such a shift.

The MPIC made several trades at the end of April in the models’ equity, fixed income, and thematic exposures, which we will highlight below.

Increasing U.S. Large Cap Growth

After outperforming from the 2022 lows, U.S. growth stocks experienced a sharp selloff during the geopolitical volatility earlier this year, particularly in technology and AI related sectors. In our view, the market reaction became disconnected from earnings fundamentals. Over recent weeks, many large cap growth companies have delivered strong results, reinforcing that secular demand trends remain intact despite macro uncertainty.

The combination of falling prices despite improving earnings had a significant impact on valuations. It has been rare to see U.S. large cap growth stocks trading at relatively attractive valuations in recent years, but the recent reset has done exactly that. At the end of March, the S&P 500 Growth Index was trading at the lowest multiple since October 2023. This reading was just the 36^th percentile of its 10-year history, at a time when many other indexes and styles were well above their respective historical averages. Along the same vein, the WisdomTree US Quality Growth Fund (QGRW) was trading at the cheapest valuation since its inception in 2022 - despite having generated a total return of over 150% over that time.

Figure 1: Historical Valuations

On top of depressed valuation was weak investor sentiment and positioning. The rolling 90-day flows for the largest Nasdaq 100 ETF went negative for the first time in several years in Q1. Institutionally, non-dealer positioning in Nasdaq futures and options contracts was among the lightest in the last 4 years. Positioning has become an increasingly important driver of forward returns as trading ease and velocity has risen, and we believe that these data points represent contrarian opportunities for reversion.

High quality stocks like these do not go on sale often, and there are even fewer times when you can say the largest names in the stock market are under-owned. As such, the Model Portfolio IC decided to take advantage of this opportunity by selectively upgrading growth stocks– exactly like we did with WisdomTree Value Fund (WTV) recently.

Increasing Emerging Market Local Debt

Within our Fixed Income Model Portfolio, we are increasing diversification and seeking more attractive income opportunities by shifting part of our U.S. core bond exposure into emerging market local debt.

We also believe the relative opportunity set within fixed income has shifted. U.S. credit spreads remain historically tight, limiting the amount of incremental compensation investors receive for taking additional credit risk domestically. In contrast, many emerging market economies continue to exhibit improving inflation dynamics, disciplined monetary policy and relatively solid fundamentals while offering materially higher yields.

Figure 2: Rolling 3-Year Total Returns: WisdomTree Emerging Market Local Debt (Blue) vs. Bloomberg U.S. Aggregate Index (Black)

After rebounding earlier this year, the U.S. dollar appears increasingly vulnerable to moderation over the medium term. We saw in 2025 how quickly dollar weakness can create meaningful tailwinds for non-U.S. assets, particularly emerging market currencies. While currency moves are never linear, we believe the current environment provides an opportunity to add non-dollar exposure to the portfolios.

Importantly, this helps broaden the portfolio’s sources of income and return while reducing reliance on a single rate or currency regime.

Reducing U.S. Defense Exposure and Increasing Cloud Computing Exposure

Our final portfolio adjustment reflects a disciplined rebalancing of relative winners and losers.

Defense stocks performed exceptionally well in recent quarters, especially during the escalation of conflict with Iran as investors priced in rising geopolitical risk and increased military spending expectations. While we continue to recognize the long-term importance of the sector, much of that positive narrative is now reflected in valuations. Performance has begun to consolidate following the sharp rally earlier this year.

At the same time, cloud computing and broad software stocks have undergone a meaningful correction. Concerns surrounding AI spending efficiency and near-term monetization pressured the sector despite continued strength in enterprise demand and digital infrastructure spending. While threats from AI are legitimate, we believe the selloff may have moved beyond justification.

Figure 3: 1-Year Performance

Figure 4: Standardized Performance

To be clear, we are not saying that the risks of investing in defense stocks are comparable to the risks of investing in cloud computing stocks. However, in our view, this dislocation has created an attractive contrarian opportunity. As a result, in the Geopolitically Risk Aware Model Portfolio we have taken profits from defense holdings and reallocated into cloud computing stocks.

Conclusion

These portfolio changes are rooted in a consistent framework: focus on areas where fundamentals are improving, valuations are more compelling and market positioning creates asymmetrical opportunity. As a result, we believe the combination of renewed growth leadership, broader fixed income diversification and selective exposure to dislocated technology themes positions portfolios for the next phase of the market cycle.