Multi-factor ETFs are increasingly prominent options for advisors looking for broad-based, diversified allocations for clients, but the application of multi-factor isn’t getting enough attention.
Advisors can turn to model portfolios for proper multi-factor implementation. A good place to start is the Strategic Model Portfolio, which is part of WisdomTree’s Modern Alpha lineup of model portfolios. This model portfolio offers three degrees of risk exposure: conservative, moderate and aggressive. We’ll examine the aggressive strategy here.
“This model portfolio is designed for growth-oriented investors with a long-term horizon looking to maximize long-term potential for capital growth through a globally diversified set of equity and fixed income ETFs,” according to WisdomTree. “The model portfolio strives to deliver performance in excess of an 80/20 combination of a broad-based global equity benchmark and a U.S. aggregate bond index.”
As noted above, 80% of the aggressive Strategic Model Portfolio is allocated to equities, which comes by way of 11 ETFs.
Making the model portfolio appealing to advisors is that its equity allocations reach across large-, mid- and small-cap stocks as well U.S. stocks and developed and emerging markets equivalents.
One of the equity components in the portfolio is the WisdomTree International Multifactor Fund (DWMF).
DWMF uses a transparent actively-managed strategy, investing in developed market equity securities, excluding the U.S. and Canada, that have the highest potential for returns based on proprietary measures.
DWMF employs a proprietary investment strategy which includes a mix of fundamental and technical factors that create a proprietary stock selection and weighting model. The approach involves screening a broad universe of stocks based on a composite multifactor score, a volatility score, and sector and country overweight and underweight bands to create a high active share portfolio in pursuit of outperformance.
DWMF also incorporates a dynamic currency overlay, building upon the dynamic currency hedging strategies WisdomTree ETFs already use, but with an active approach to evaluating and implementing currency hedge ratios.
The Strategic Model Portfolio’s fixed income holdings, sourced via eight ETFs, are diverse as well. That roster, which includes WisdomTree and other issuers’ products, features funds of varying bond assets, geographies, maturities, and credit qualities.