1Wk·

Efficient Core by Wisdomtree

Has anyone ever dealt with the $NTSG (+0.79%) or $WTEF (+0.67%) has anyone looked into it? At first glance, it would probably not be a bad investment compared to a 100% equity portfolio. (Especially the younger one $NTSG (+0.79%) ).

To what extent would this be suitable for people with less of an affinity for risk? For example, in comparison to 80% stocks 20% bonds

For those who don't know it yet:

quite simply (I can't say much more than that) the etf has two shares. An equity component and a bond component.

90% equities

60% bonds.

for those who know math and think "you idiot miscalculated, that's 150%!" the 60% bond exposure is leveraged via rolling futures.

Of course, the low capitalization of the ETF has been problematic so far. There is a risk that it could be liquidated.

I haven't read into it that deeply yet. Therefore: does anyone know it? Any thoughts on it?

16 Comments

Epi@Epi

1Wk

This is essentially a 1.5x leveraged 60/40 portfolio. According to theory and backtests, you can have the performance of the stock market with the drawdown of a 60/40 portfolio.

The whole thing is called efficient core because the 1.5x leverage means you need less capital for the core and have more for the satellites to achieve the same effect.

Interesting concept for core-satellite investors. 👍

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Uwe@SchlaubiSchlumpf

1Wk

@Epi Why for core satellites? Wouldn't that also be interesting for the classic buy-and-hold index investor? 🤔

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TotallyLost@TotallyLost

1Wk

@SchlaubiSchlumpf yes already.
Actually, the ETF + an EM ETF would be enough.
However, this is a rather complex construct and I personally would feel uncomfortable with too large a position.
However, my portfolio now has 25 positions and there will probably be at least 3 more... so I'm probably the wrong person to talk to. 😅

But the question is, which is better to leverage the bonds or to sell them anti-cyclically in dropdowns to increase the equity allocation?
Or to put it another way, why not $D5V0 instead?

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Uwe@SchlaubiSchlumpf

1Wk

@TotallyLost I was thinking a bit about my girlfriend when I thought about the ETF. Yesterday we killed her DEKA fund of 16k and realized that despite monthly investments of 80% of her salary (due to little spending) she will probably only reduce her capital in 8 years. She doesn't have a multi-factor portfolio like me (that would be too complicated for her) but simply 70% World/30% EM. We now have low-risk 20% and 80% etfs according to the pattern mentioned. Now there would still be room for some finetuning. I've even thought about $GERD for her 😅

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Uwe@SchlaubiSchlumpf

1Wk

@SchlaubiSchlumpf shouldn't be so complicated that she can't explain it herself as a layperson in the end. It's very important to me that I explain to her what the choices are, but that she makes the decision herself. Even though I know that I naturally have a big influence on her decisions. But especially on the structure by pointing out to her that she should have a nest egg (which she has set aside for almost a year's net worth) and that I should point out the existence of low-risk asset classes (rolling 0-1 year euro bonds)

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TotallyLost@TotallyLost

1Wk

@SchlaubiSchlumpf You could suggest gold / Bitcoin in small portions (5% each). This will probably have a greater diversification effect than even more equities/bonds.

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Kate🦋@Iwamoto

1Wk

@TotallyLost Which EM ETF would you recommend?

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TotallyLost@TotallyLost

1Wk

@Iwamoto In the case of an inexperienced investor, $EIMI is one of the cheapest and even includes small caps.

Otherwise, $PEH and $FYEM

The EM Value from iShares is also really cool $5MVL, flies totally under the radar, nobody talks about it, but it has left everything behind in the EM sector.

But my personal favorite is the Magna New Frontiers Fund $C084Y2, an actively managed fund that invests in frontier markets.
And since these are not represented in almost any portfolio, you can add 1-3% of this baby to your portfolio.

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Uwe@SchlaubiSchlumpf

1Wk

@TotallyLost $EIMI is wonderful and just right. $5MVL is great and I have it in there too. I left factors out for them, as there would be something to explain if Value didn't perform in the EM 😅

I'll save the Magna for myself. But it should be seen more as a supplement than as an EM share in the classic sense. I think frontier markets are really difficult, aren't they? I could imagine that there are still risks here that are not sufficiently rewarded.

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Uwe@SchlaubiSchlumpf

1Wk

@TotallyLost She has gold, but as an ecologist I don't do bitcoin to my girlfriend. 😅 She'd rather leave that kind of stuff to me

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Stulle 🥪@Stullen-Portfolio

1Wk

Yes, I find the construct very interesting in principle.
In particular, the fact that the lower-risk part (bonds) is leveraged and this is done in a comparatively low-risk way. @Epi has also summarized it very aptly.

So if you want to invest a portion in bonds, this would be my product of choice.

However, since I personally am far from being in a phase where I invest in bonds, taking into account all my boundary conditions, I do not need this product either....but that should not detract from my assessment of the product as such.

Greetings
🥪

Greetings

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Uwe@SchlaubiSchlumpf

1Wk

@Stullen-Portfolio I feel the same way. I find the product very attractive, but it would not be an option for me due to my factor affinity. But I think it's an interesting product for people who just want it. I just wanted to get your opinion as I know that you are similar to me and I value your opinion before I promote the product 😁

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Epi@Epi

1Wk

Addendum: I find the basic approach of the Efficient Core ETF problematic.
The idea is based on backtesting since around 1980 (white paper on Wisdomtree's website). This is a phase of low or steadily falling key interest rates. In these phases, 60/40 works because equities and bonds are then negatively correlated.
However, as soon as interest rates rise and inflation is >3%pa, this no longer works. Equities and bonds are then positively correlated. The efficient core concept then collapses.

Where are we now after 40 years of falling interest rates and inflation? Everyone is welcome to answer that for themselves. The answer will determine whether the efficient core makes sense or is hara-kiri. 🤔

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Uwe@SchlaubiSchlumpf

1Wk

I don't know if I would subscribe to it one hundred percent. In the EU we should slide back into the falling yield curve. But it depends on how many bonds the EU puts on the market. At the moment, higher interest rates are already priced in for the long term than for the short term. With the Americans, it also depends on what happens next. It feels like it can go either way at the moment. But I basically agree with you. There was cherry-picking here. Something like that would not have been nice in 2022.

Thanks for your assessment!

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Uwe@SchlaubiSchlumpf

1Wk

@Epi At present, the ETF is probably also so small that it could remain unsuccessful and be liquidated, which would result in tax disadvantages

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Uwe@SchlaubiSchlumpf

1Wk

@TotallyLost, @Stullen-Portfolio what do you think?

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