Exchange-traded funds rolling off the assembly line that are described as “disruptive” generally pertain to the tech sector. But the WisdomTree 90/60 U.S. Balanced Fund (NTSX) that launched Thursday offers what WisdomTree describes as a “new and disruptive approach” to asset allocation traditionally structured via 60/40 equity/bond portfolios.
The company posits that its 90/60 approach could provide sufficient allocation with greater tax efficiency by gaining exposure to fixed income via futures contracts as opposed to cash bonds.
As described in fund literature, fixed-income total returns driven mainly by interest income and held in taxable accounts can be taxed at withholding rates as much as 39.6 percent. On the other hand, capital gains on Treasury futures contracts are taxed at 60 percent long-term, 40 percent short-term capital gains rates.
WisdomTree believes this tax advantage could be key in periods of rising interest rates.
With its NTSX fund, WisdomTree applies 1.5x accounting leverage to a traditional 60/40 portfolio to create exposure equal to 90 percent in equities and 60 percent in bonds. Specifically, it invests 90 percent of the fund’s assets in the 500 largest U.S. stocks by market capitalization and 10 percent in short-term fixed income that collateralize a targeted 60 percent notional exposure to U.S. Treasury futures maturing in a range of two to 30 years.
The fund will rebalance if it deviates by 5 percent from its 90/60 allocations.
NTSX sports an expense ratio of 0.20 percent.