Actively Managed Wisdom

USA

WisdomTree lists actively managed funds

The only publicly listed pure-play ETF provider is rolling out three new ETFs. Two of the new products are actively managed multifactor funds, while the final fund offers something like a model portfolio within an ETF.

  • WisdomTree International Multifactor Fund
  • WisdomTree Emerging Markets Multifactor Fund
  • WisdomTree 90/60 US Balanced Fund (NTSX)

Multifactor funds

The international multifactor fund invests in a basket of equities from every rich industrialised country with the exceptions of Canada and the US, while providing a currency hedge against the US dollar. In picking which stocks to invest in, WisdomTree’s portfolio managers will use an in-house quantitative model and rebalance the fund every quarter (at least). The prospectus does not give away too much about what the model will look like or which factors it will use. It only says that the quality of the companies invested in will be considered, so too will their valuations. It adds that a “long-term approach” will be taken to minimise portfolio turnover.

The emerging markets fund will run a similar operation, targeting emerging markets.

90/60 Balanced Fund

The balanced fund offers a different take and appears to be offering an actively managed balanced portfolio within an ETF. NSTX will invest 90% in American large caps, while using the remaining funds’ assets to gain exposure to US Treasury Futures worth a notional 60% of the fund. This will be done by using the leftover cash as collateral for the treasury futures positions. NSTX will target a duration of 2 – 8 years for its futures. The prospectus does not provide much detail on how stocks will be selected.

Analysis – geared model portfolio ETF

WisdomTree is not the first to list actively managed factor funds – that title goes to Vanguard. But it is the first – at least as far as we can tell – to list an actively managed geared balanced portfolio ETF. There are a number of comments.

First, the crucial aspect for the new fund will be price. Active management can be great. And as we all know, the passive revolution was never so much about active managers underperforming as much as active managers overcharging. If NSTX is to offer value-added active management, which is entirely possible, fees will be crucial.

Second, WisdomTree will need a clear idea of where the market is for this type of product lies. NSTX is a sophisticated ETF. One imagines retail investors will struggle to understand how a fund can be 90% exposed to equities at the same time as being 60% exposed to treasuries. This suggests the target market will be institutions – perhaps advisors. Yet institutions – and advisors chief among them – tend to be much more fee conscious than retail investors, which reinforces the first point.

Third, this type of fund could work well. WisdomTree has had success in the alternatives space before, particularly with its Put-Write ETF. Let’s see how this one goes.