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WBAL: The Problem-Solving ETF Of ETFs

Apr. 02, 2018 8:02 AM ETWBAL
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By Jeff Weniger, CFA, Asset Allocation Strategist

The Known Quantity

What defines a "balanced fund" is in the eye of the beholder. For some mutual funds, a 60%/40% equity/fixed income mix one year might be 50%/50% the next year. Who knows? No one knows. How boldly a fund may deviate from the original mandate is guesswork.

Hard-and-fast rules can help solve the problem. Our new ETF, the WisdomTree Balanced Income Fund (WBAL), is a 60%/40% equity/fixed income ETF of ETFs. Only market drift will take it away from 60/40. And even if that does happen, we rebalance it.

Addressing the Problem of Weak Managers

A benefit of WBAL's ETF-of-ETFs structure is that, despite the current weighted-average expense ratio of WBAL's 12 underlying ETFs being 32 basis point (bps), we structured it so that its all-in cost will always be 35 bps, or 3 incremental basis points beyond what would be incurred from owning the 12 ETFs individually.

Those 12 ETFs are all rules based, so they tap into classic WisdomTree smart beta methodologies such as weighting equity holdings by dividends, not market capitalization. That is one of the nice benefits of a balanced fund that comes from a smart beta-oriented firm.

Early last year, S&P Dow Jones Indices published research that exposed the pressure that has been building on active money managers. It found that only 30.8% of U.S. large-cap mutual funds outperformed their benchmarks over three years.1 Perhaps more disturbingly, of those funds, only 5.2% went on to outperform in the subsequent three years.

According to Morningstar, the asset-weighted median expense ratio for U.S.-domiciled allocation funds is 0.64%.2 So many mutual funds cannot compete; they trip over their own expense ratios.

Consider those 64 basis points in the context of the 2.68% yield of WBAL's benchmark.3 Take out

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In 2006, WisdomTree launched with a big idea and an impressive mission — to create a better way to invest. We believed investors shouldn’t have to choose between cost efficiency and performance potential, so we developed the first family of ETFs designed to deliver both. Today, WisdomTree offers a leading product range that offers access to an unparalleled selection of unique and smart exposures.

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