BEST NEW ASSET ALLOCATION ETF
WINNER: WisdomTree 90/60 U.S. Balanced Fund (NTSX)
The “Best New Asset Allocation ETF” is awarded to the most important ETF launched in 2018 that combines exposure to multiple asset classes, and for 2018, that was the WisdomTree 90/60 U.S. Balanced Fund (NTSX).
NTSX is an actively managed portfolio of U.S. equities and U.S. Treasury futures contracts that uses futures contracts to construct what is effectively a leveraged 60/40 portfolio of U.S. equities and Treasuries. The fund places 90% of its assets in U.S. equities and the remaining 10% in Treasury futures contracts that are then used to collateralize a U.S. Treasury futures portfolio that equates to notional exposure of 60% of the portfolio.
The resulting exposure is equivalent to a 90/60 allocation to stocks and Treasuries, or a 60/40 allocation leveraged 150%. The equity allocation will generally consist of U.S. large-caps, weighted by market cap. Treasury exposure will range in maturity between two and 30 years, with a target duration of three to eight years.
The ETF is cheap for an asset allocation ETF, with an expense ratio of 0.20%. It uses derivatives to “shape returns,” which is a real pattern seen in recent launches. The strategy provides “leverage,” but in a controlled way. While the fund is still in its early days, NSTX has effectively navigated a tricky three-month market window to outperform both the S&P 500 and Treasuries, its two target markets.
Ultimately, NTSX offers investors a potentially important portfolio tool in about the cheapest way possible.
BEST NEW SMART-BETA OR FACTOR ETF
WINNER: iShares Evolved U.S. Sector ETFs (Series) (IECS)
Artificial intelligence is at the core of what makes the iShares Evolved U.S. Sector ETFs the best in smart-beta innovation in 2018.
The Evolved sector series includes seven different funds in all—the iShares Evolved U.S. Consumer Staples ETF (IECS) is a mere representative of the entire series for the purpose of this award.
The other funds in the family include the iShares Evolved U.S. Discretionary Spending ETF (IEDI), the iShares Evolved U.S. Healthcare Staples ETF (IEHS), the iShares Evolved U.S. Innovative Healthcare ETF (IEIH), the iShares Evolved U.S. Financials ETF (IEFN), the iShares Evolved U.S. Technology ETF (IETC) and the iShares Evolved U.S. Media and Entertainment ETF (IEME).
These are actively managed ETFs that offer U.S. sector exposure that’s anything but traditional. With the use of AI—including machine learning, natural language processing and text analysis—iShares sifts through big data to group similar companies based on key business drivers in a methodology that stands in contrast to the more traditional revenue-based screens applied to sector investing.
The entire suite relies on how companies describe themselves and their business in publicly available materials, looking to tackle the reality that, in today’s highly connected economy, some companies may fit in more than one traditional GICS sector classification.
In the Evolved series, any given company may fall into more than one sector portfolio, and is weighted accordingly. It’s a new way to slice and dice sectors that are dynamic and ever-changing. IECS and its counterparts each have a 0.18% expense ratio, or $18 per $10,000 invested.