WisdomTree has launched two ETFs today that cover two very different spaces. The WisdomTree Balanced Income Fund (WBAL) offers 60/40 exposure to global equities and fixed-income spaces, while the WisdomTree ICBCCS S&P China 500 Fund (WCHN) provides exposure to China’s large-cap space across the full range of share types.
Both funds list on the NYSE Arca. WBAL carries an expense ratio of 0.35%, while WCHN charges 0.55%.
WBAl is basically an ETF of ETFs that rebalances to a 60% equity/40% fixed-income split annually generally. However, if the weights of the two buckets are more than 2% out of alignment, rebalances can occur quarterly.
“This is really WisdomTree’s first integrated ETF solution. This is the first time we’ve done broad asset allocation inside an ETF,” said WisdomTree Chief Investment Strategist Luciano Siracusano.
“It’s designed to give investors a broad, global 60/40 exposure in a balanced way using equity and fixed-income ETFs, but at the same time trying to increase the amount of income you can squeeze out of the market,” he added. “We’re trying to strike a balance between the balanced global and also generating income. What makes it fairly unique is that it’s kind of an all-in-one, one-stop shopping solution.”
The fund primarily invests in WisdomTree’s own ETFs, but currently includes two iShares funds in the fixed-income bucket covering the mortgage-backed securities and long-term Treasury spaces, which WisdomTree does not cover in its lineup. In general, Siracusano expects the entire portfolio to hold 10-12 ETFs.
“There’s probably at least $100 billion invested in balanced “mutual” funds. When we actually look at how those actively managed balanced funds have performed over time relative to a common 60/40 benchmark, if you do the analysis, I think you’ll find the majority of them have underperformed what the benchmark has returned, which raises the question, why would you use the balanced manager?” Siracusano said.
He points to the fund’s 35-basis-point expense ratio as a way to get lower-cost exposure to a balanced strategy.
“This is designed really to give people a choice who are trying to choose between higher-fee active and lower-fee beta—but lower-fee beta that’s not really meeting their income needs,” he added.
WCHN is a new take on exposure to China in that it tracks an index derived from the S&P Total China BMI Index, which covers all of the various shares classes associated with China’s equity markets. The underlying index essentially includes the largest 500 companies from the parent index that meet size and liquidity requirements.
The index is weighted by modified market capitalization, and seeks to maintain sector weights reflective of the parent index. Importantly, the fund can invest directly in China’s A-shares market, which requires authorization from the Chinese government for foreign investors.
“Investors are very familiar with the role that China plays in the global economy, but if you look at the role it plays in their equity portfolios, it tends to be very low relative to the total market cap of Chinese companies,” said Bradley Krom, WisdomTree’s associate director of research.
“The reason is that the Chinese government has a significant ownership, so you don’t see the all of the total market outstanding freely trading. And then they also have this issue of not allowing free access to their financial markets,” he added.
He notes that despite being the second-largest market in the world, China has a representation of just 2-3% in global equity indexes.
“Our belief is that China is going through a process of liberalizing access to their financial markets. You’re going to see Chinese equities rising in prominence in global equity markets,” Krom said.
Contact Heather Bell at [email protected]