Reasons abound to reconsider the old guard 60/40 equity/fixed income portfolio split, not the least of which is a recent rise in Treasury yields.
“Since August, Treasury yields have roughly doubled, albeit from an all-time low. During the same period stocks have risen more than 20%. And while a similar dynamic took place in late 2016, recent behavior is evidence of a shift in the relationship between stocks and bonds: their correlation, while still negative, is rising,” according to BlackRock research.
Model portfolios make it easier for advisors to dial back fixed income exposure while not being 100% invested in equities.
The Siegel-WisdomTree Longevity and the Siegel-WisdomTree Global Equity Model Portfolios are designed to breathe new life into the often staid 60/40 split.
“The Siegel-WisdomTree Longevity Model Portfolio was designed to outperform a traditional 60/40 portfolio in a risk-conscious manner by structurally allocating more toward equities over fixed income and tilting toward factors such as dividend yield and low P/E ratios to seek higher income generation and outperformance potential,” according to WisdomTree. “The models are strategic in nature but also reflect tactical tilts based on market conditions. The strategy may include both WisdomTree and non-WisdomTree ETFs.”
Why This Model Portfolio Is Relevant Today
The longevity model portfolio is 72% allocated to equity-based ETFs, 22% to bond ETFs and features a 6% allocation to alternative funds.
Recent shifts in the correlations between equities and bonds underscore the utility of Siegel-WisdomTree Longevity Model Portfolio in today’s market climate.
“Less positive is the shift in stock-bond correlations. A less negative correlation with stocks makes bonds a less reliable hedge. And beyond rising correlations, there is another dynamic at play as well: lower bond volatility relative to stock volatility is further compromising the role of bonds,” notes BlackRock.
The model portfolio’s exposure alternatives, albeit modest, can act as diversification tool and provide a hedge when equities falter – something bonds typically do, but are showing waning effectiveness in accomplishing.
For more on how to implement model portfolios, visit our Model Portfolio Channel.