WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
- nisiprius
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Leveraged funds are not my thing and I take a jaundiced view of their complex internals, but I do peek from time to time. The job NTSX is intended to do--at least as I understood it from WisdomTree's initial presentation--is to allow you to get the same results as a boring 60/40 portfolio, but using only ⅔ of your portfolio space to do it. That leaves you free to fill up the other ⅓ with an "alpha strategy" or a liquid alt as diversifier or what have you, without worrying that lower return in that allocation will drag down portfolio return because you've already got the full return in the other ⅔.
From that point of view, it's reasonable to compare the results a portfolio of 66.7% NTSX and 33.3% "CASHX" (PortfolioVisualizer's pseudo-ticker for cash, one-month Treasury bills) with a straight 60/40 VTI/BND. If NTSX is doing it's job--what I think is supposed to be its job--they should be about the same. 100% of the behavior of 60/40 using only ⅔ of your portfolio. If I owned it personally, I don't think I'd have any complaints. Tracking it daily doesn't make sense to me.
The results in terms of "doing what it's supposed to," look pretty good. I can't judge the safety or reliability of the financial engineering they use to get those results.
Source
The discrepancies do matter, and the tracking isn't perfect even on a month-to-month level. The fact that NTSX (blue line) is almost always above the straight 60/40 (red line) is to some extent the luck of the starting point. If you invested at the worst possible time, that looks to be 3/31/2020 because NTSX + CASHX cost more to buy than VTI + BND. If you'd invested $10,000 at the start of April, 2020:
Source
then the NTSX + CASHX investor would be $400 behind the straight 60/40 investor, or -4% behind. March 2020 can be regarded as a pretty severe stress test. Theoretically you aren't putting the other 33.3% into cash, but into something clever, and some tracking error might be worth it in order to give you the ability to do that.
Another way to look at it is that over that time period, an investment of $10,000 in 60/40 would have grown $10,000 to $13,257--it would have made $3,257. The hope is that a pure investment in 100% NTSX would have made 1.5X that = $4,885.50. The reality was that it would have made $4,077 = 1.25X as much as the 60/40 portfolio. Not bad for the absolute worst possible time. And anyone buying before that worst possible time would have been happy with the tracking error.
From that point of view, it's reasonable to compare the results a portfolio of 66.7% NTSX and 33.3% "CASHX" (PortfolioVisualizer's pseudo-ticker for cash, one-month Treasury bills) with a straight 60/40 VTI/BND. If NTSX is doing it's job--what I think is supposed to be its job--they should be about the same. 100% of the behavior of 60/40 using only ⅔ of your portfolio. If I owned it personally, I don't think I'd have any complaints. Tracking it daily doesn't make sense to me.
The results in terms of "doing what it's supposed to," look pretty good. I can't judge the safety or reliability of the financial engineering they use to get those results.
Source
The discrepancies do matter, and the tracking isn't perfect even on a month-to-month level. The fact that NTSX (blue line) is almost always above the straight 60/40 (red line) is to some extent the luck of the starting point. If you invested at the worst possible time, that looks to be 3/31/2020 because NTSX + CASHX cost more to buy than VTI + BND. If you'd invested $10,000 at the start of April, 2020:
Source
then the NTSX + CASHX investor would be $400 behind the straight 60/40 investor, or -4% behind. March 2020 can be regarded as a pretty severe stress test. Theoretically you aren't putting the other 33.3% into cash, but into something clever, and some tracking error might be worth it in order to give you the ability to do that.
Another way to look at it is that over that time period, an investment of $10,000 in 60/40 would have grown $10,000 to $13,257--it would have made $3,257. The hope is that a pure investment in 100% NTSX would have made 1.5X that = $4,885.50. The reality was that it would have made $4,077 = 1.25X as much as the 60/40 portfolio. Not bad for the absolute worst possible time. And anyone buying before that worst possible time would have been happy with the tracking error.
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
I appreciate the responses, and I see the logic in them, but I suppose I'm wondering more 'why' this is happening, as it is not only the tracking error, but also the intra-day spread.
For instance, TYA is a 3x leveraged ITT ETF that uses the same, or similar (as far as I can tell from the prospectus), mechanism to achieve its leverage - namely treasury futures that are rolled over quarterly. It has a lower AUM, and lower daily trading volume, yet its average spread as per etf.com is 0.08% vs NTSX's 0.23%. NTSX is made up of the S&P 500 stocks and treasury futures, two very liquid assets, yet the spread is still higher.
As nisiprius had pointed out, it seems to do its job over the long run, which is what matters, but it still seems a bit strange. Maybe it is the exchange it trades on, or some other esoteric aspect of it?
For instance, TYA is a 3x leveraged ITT ETF that uses the same, or similar (as far as I can tell from the prospectus), mechanism to achieve its leverage - namely treasury futures that are rolled over quarterly. It has a lower AUM, and lower daily trading volume, yet its average spread as per etf.com is 0.08% vs NTSX's 0.23%. NTSX is made up of the S&P 500 stocks and treasury futures, two very liquid assets, yet the spread is still higher.
As nisiprius had pointed out, it seems to do its job over the long run, which is what matters, but it still seems a bit strange. Maybe it is the exchange it trades on, or some other esoteric aspect of it?
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
BND may be the wrong ETF for comparison since NTSX uses a ladder of treasury futures. Someone had a backtest that used 1/3 SHY, 1/3 IEF and 1/3 TLT for the bond portion which may be a better approximation. How often it is rebalanced could also be a factor.
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Semi-related, if you want to backtest NTSX for longer than its existence, this is the simulation that I have always used (not my idea, I forget who first posted it)... 90% S&P500, 20% STT, 20% ITT, 20% LTT, -50% Cash:
NTSX Simulation vs Actual
NTSX actually uses 5 different duration bond futures, but the simulation approximates it fairly well. You can see the exact holdings here:
https://www.wisdomtree.com/investments/ ... s-ntsx.pdf
Interesting they are getting 4.84% on their 12% cash collateral as well.
NTSX Simulation vs Actual
NTSX actually uses 5 different duration bond futures, but the simulation approximates it fairly well. You can see the exact holdings here:
https://www.wisdomtree.com/investments/ ... s-ntsx.pdf
Interesting they are getting 4.84% on their 12% cash collateral as well.
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
That's about what t-bills are paying.occambogle wrote: ↑Sat Apr 15, 2023 10:50 am Interesting they are getting 4.84% on their 12% cash collateral as well.
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Sure, I’d just forgotten that they could earn interest on the collateral as well as the futures.thenextguy wrote: ↑Sat Apr 15, 2023 11:31 amThat's about what t-bills are paying.occambogle wrote: ↑Sat Apr 15, 2023 10:50 am Interesting they are getting 4.84% on their 12% cash collateral as well.
- hiddenpower
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
If you try to hand roll this with VTI and 10% collateral for treasury futures, is it likely the 10% initial collateral would be sufficient to prevent ever having to sell VTI? If so then seems reasonably to try mimicking NTSX
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Appreciate the post by nisiprius. The benefits of NTSX as I see them vs 60-40 are
- improved tax efficiency
- potentially more diversified, extent and effectiveness is based on what you do with the other 1/3 of your money, as nisiprius said, it’s not really designed to just be in cash
- possible rebalancing bonus, though this is probably just path dependent luck
So how good is NTSX? In and of itself it provides an investor an opportunity for improved performance, but it really comes down to how you use it.
- improved tax efficiency
- potentially more diversified, extent and effectiveness is based on what you do with the other 1/3 of your money, as nisiprius said, it’s not really designed to just be in cash
- possible rebalancing bonus, though this is probably just path dependent luck
So how good is NTSX? In and of itself it provides an investor an opportunity for improved performance, but it really comes down to how you use it.
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Probably, but if you really just wanted to exactly replicate NTSX, I’d actually just use NTSX. Letting someone else do all the quarterly futures rolling is worth it to me.hiddenpower wrote: ↑Sun May 21, 2023 10:21 am If you try to hand roll this with VTI and 10% collateral for treasury futures, is it likely the 10% initial collateral would be sufficient to prevent ever having to sell VTI? If so then seems reasonably to try mimicking NTSX
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- hiddenpower
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Id rather not do that because Id like the option to stop if inflation is sky high, rates are zero, and the fed is forecasting their exact next steps. I’ve also compared the dividend yields and it seems about equal when you add back in the ERmuffins14 wrote: ↑Sun May 21, 2023 6:18 pmProbably, but if you really just wanted to exactly replicate NTSX, I’d actually just use NTSX. Letting someone else do all the quarterly futures rolling is worth it to me.hiddenpower wrote: ↑Sun May 21, 2023 10:21 am If you try to hand roll this with VTI and 10% collateral for treasury futures, is it likely the 10% initial collateral would be sufficient to prevent ever having to sell VTI? If so then seems reasonably to try mimicking NTSX
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Yes, there is value here in simplicity. Getting elbow deep into rolling your own futures and deciding when to rebalance and everything else creates a temptation to meddle while you're there. I try to create a portfolio that is as "set it and forget it" as possible. That way there isn't an incredible number of levers for me to tweak when things aren't going perfectly or when everyone is whispering in your ear about a global economic recession due to a US default. The expense ratio on NTSX is extremely reasonable and if your justification for replicating it is to save yourself the 0.2% drag on the portfolio, all you're really doing is trying for the high score at the end of the game.muffins14 wrote: ↑Sun May 21, 2023 6:18 pmProbably, but if you really just wanted to exactly replicate NTSX, I’d actually just use NTSX. Letting someone else do all the quarterly futures rolling is worth it to me.hiddenpower wrote: ↑Sun May 21, 2023 10:21 am If you try to hand roll this with VTI and 10% collateral for treasury futures, is it likely the 10% initial collateral would be sufficient to prevent ever having to sell VTI? If so then seems reasonably to try mimicking NTSX
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
kevinf wrote: ↑Sun May 21, 2023 6:34 pmYes, there is value here in simplicity. Getting elbow deep into rolling your own futures and deciding when to rebalance and everything else creates a temptation to meddle while you're there. I try to create a portfolio that is as "set it and forget it" as possible. That way there isn't an incredible number of levers for me to tweak when things aren't going perfectly or when everyone is whispering in your ear about a global economic recession due to a US default. The expense ratio on NTSX is extremely reasonable and if your justification for replicating it is to save yourself the 0.2% drag on the portfolio, all you're really doing is trying for the high score at the end of the game.muffins14 wrote: ↑Sun May 21, 2023 6:18 pmProbably, but if you really just wanted to exactly replicate NTSX, I’d actually just use NTSX. Letting someone else do all the quarterly futures rolling is worth it to me.hiddenpower wrote: ↑Sun May 21, 2023 10:21 am If you try to hand roll this with VTI and 10% collateral for treasury futures, is it likely the 10% initial collateral would be sufficient to prevent ever having to sell VTI? If so then seems reasonably to try mimicking NTSX
The ER is definitely fine but I highlighted this fact since many go all in on these funds in their taxable accounts for the tax efficiency. When I add back in the ERs, it doesn’t seem all that more efficient. VT seems like a better building block to me. Id rather that than ever want to sell NTS(*) when it’s apparent bonds are in for a bad ride. I’m sure we will witness this outcome again over the long term.
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
How come most of the distributions have been income? I was expecting more LT gains due to using treasury futures.
Source: https://i.imgur.com/jd2nGOK.png
Source: https://i.imgur.com/jd2nGOK.png
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
What’s the source of data for that?hiddenpower wrote: ↑Wed Jun 07, 2023 5:38 pm How come most of the distributions have been income? I was expecting more LT gains due to using treasury futures.
Source: https://i.imgur.com/jd2nGOK.png
I imagine your 1099 may differ. If I am very bored this weekend I will track down my 1099 from the last time I held NTSX and let you know what it said
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- hiddenpower
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Morningstar. Treasury futures should come through as 60/40 treatment afaik. Maybe it's because the fund has internal losses from the bond havoc but jw if anyone knows.muffins14 wrote: ↑Wed Jun 07, 2023 5:55 pmWhat’s the source of data for that?hiddenpower wrote: ↑Wed Jun 07, 2023 5:38 pm How come most of the distributions have been income? I was expecting more LT gains due to using treasury futures.
Source: https://i.imgur.com/jd2nGOK.png
I imagine your 1099 may differ.
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
checking my 1099, all I can say is that I had dividends from NTSX, and 100% were qualified
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- hiddenpower
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
But they weren't 60/40 treatment on the bond side. That's what I don't get about this fund. They should be able to structure a good chunk at LTCG, but is it just because there aren't any gains? 100% qual dividends is nice though
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
LTCG is the same as qualified dividends rates though, so it was even better than 60/40hiddenpower wrote: ↑Wed Jun 07, 2023 10:04 pmBut they weren't 60/40 treatment on the bond side. That's what I don't get about this fund. They should be able to structure a good chunk at LTCG, but is it just because there aren't any gains? 100% qual dividends is nice though
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- hiddenpower
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
LTCGs (and STCGs) can be offset by losses so pairs well with TLHing.muffins14 wrote: ↑Wed Jun 07, 2023 10:07 pmLTCG is the same as qualified dividends rates though, so it was even better than 60/40hiddenpower wrote: ↑Wed Jun 07, 2023 10:04 pmBut they weren't 60/40 treatment on the bond side. That's what I don't get about this fund. They should be able to structure a good chunk at LTCG, but is it just because there aren't any gains? 100% qual dividends is nice though
But yes, 100% qualified dividends are for the most part better than 60/40 under most circumstances. And it crushes non-qualified dividends you'd get from treasury ETFs. I just want to understand how it works and if this will continue or if there's internal losses or something in the fund that have negated yields.
NTSE is 30% qualified based on an old report, and NTSI is 90% qualified. In line with what one would expect for the underlying index.
Last edited by hiddenpower on Wed Jun 07, 2023 10:34 pm, edited 1 time in total.
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Yea you’re right, sorry. I’d love to know how other people tracked and reported that
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- hiddenpower
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Well I'm not sure what's optimal comparing strictly between 60/40 vs qualified dividends. I think it's case by case. Maybe 60/40 when you have lots of TLH opportunities or losses accrued, and qualified dividends in all other situations?
Can't get around the dividends in the underlying funds anyway, but would like to understand what's happening behind the scenes a bit more.
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
one other question here- NTSX is using middle of the curve ITTs. Given the 10Y treasury yield is 3.6% and the risk free rate is 5%, these treasury futures would be executing as a loss no? For example the 5% risk free rate cost should be baked into the price as should the lower yield. Thanks for explaining / confirming. I'm interested in executing a strategy like this myself one day.
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
I don't have a direct answer to your question, but here is NTSX's sheet (PDF) on its financing costs and the implications the inverted yield curve negative carry have on its yield.hiddenpower wrote: ↑Thu Jun 08, 2023 12:51 pm one other question here- NTSX is using middle of the curve ITTs. Given the 10Y treasury yield is 3.6% and the risk free rate is 5%, these treasury futures would be executing as a loss no? For example the 5% risk free rate cost should be baked into the price as should the lower yield. Thanks for explaining / confirming. I'm interested in executing a strategy like this myself one day.
The NAV of NTSX should reflect only the market value of the S&P 500 stocks and the treasury futures that it holds, but the yield is definitely affected by the financing costs. I don't know if the financing costs can ever eat into the NAV the same way they do for daily resetting leveraged ETFs though.
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
If my math is right, looks like the futures are subtracting 0.68% from the yield. In other words, if the fund were just 90/10 equities 3month Tbills, the yield would be 1.91% but it’s actually 1.23% with the futures.Phyneas wrote: ↑Thu Jun 08, 2023 2:16 pmI don't have a direct answer to your question, but here is NTSX's sheet (PDF) on its financing costs and the implications the inverted yield curve negative carry have on its yield.hiddenpower wrote: ↑Thu Jun 08, 2023 12:51 pm one other question here- NTSX is using middle of the curve ITTs. Given the 10Y treasury yield is 3.6% and the risk free rate is 5%, these treasury futures would be executing as a loss no? For example the 5% risk free rate cost should be baked into the price as should the lower yield. Thanks for explaining / confirming. I'm interested in executing a strategy like this myself one day.
The NAV of NTSX should reflect only the market value of the S&P 500 stocks and the treasury futures that it holds, but the yield is definitely affected by the financing costs. I don't know if the financing costs can ever eat into the NAV the same way they do for daily resetting leveraged ETFs though.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
NTSX actually uses a range of treasuries, not just 5/10 year. It’s 2,5,10,30 year treasury futures contracts.hiddenpower wrote: ↑Thu Jun 08, 2023 12:51 pm one other question here- NTSX is using middle of the curve ITTs. Given the 10Y treasury yield is 3.6% and the risk free rate is 5%, these treasury futures would be executing as a loss no? For example the 5% risk free rate cost should be baked into the price as should the lower yield. Thanks for explaining / confirming. I'm interested in executing a strategy like this myself one day.
But yea, it’s possible that sometimes borrowing short to invest long may not work
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
So the 5, 10 , 30 must be deep underwater purely when considering the financing costs of futures right now and the inverted yield?muffins14 wrote: ↑Thu Jun 08, 2023 2:31 pmNTSX actually uses a range of treasuries, not just 5/10 year. It’s 2,5,10,30 year treasury futures contracts.hiddenpower wrote: ↑Thu Jun 08, 2023 12:51 pm one other question here- NTSX is using middle of the curve ITTs. Given the 10Y treasury yield is 3.6% and the risk free rate is 5%, these treasury futures would be executing as a loss no? For example the 5% risk free rate cost should be baked into the price as should the lower yield. Thanks for explaining / confirming. I'm interested in executing a strategy like this myself one day.
But yea, it’s possible that sometimes borrowing short to invest long may not work
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
The collateral for the futures is also earning interest though, so that helps
But yes, I’m sure leveraged bonds have not been fun lately
But yes, I’m sure leveraged bonds have not been fun lately
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Yeah. Add "the yield curve being inverted way way longer than anyone expected" to the list of oddities than can impact NTSX.hiddenpower wrote: ↑Thu Jun 08, 2023 2:33 pmSo the 5, 10 , 30 must be deep underwater purely when considering the financing costs of futures right now and the inverted yield?muffins14 wrote: ↑Thu Jun 08, 2023 2:31 pmNTSX actually uses a range of treasuries, not just 5/10 year. It’s 2,5,10,30 year treasury futures contracts.hiddenpower wrote: ↑Thu Jun 08, 2023 12:51 pm one other question here- NTSX is using middle of the curve ITTs. Given the 10Y treasury yield is 3.6% and the risk free rate is 5%, these treasury futures would be executing as a loss no? For example the 5% risk free rate cost should be baked into the price as should the lower yield. Thanks for explaining / confirming. I'm interested in executing a strategy like this myself one day.
But yea, it’s possible that sometimes borrowing short to invest long may not work
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Now that bond yields are favorable, is it time to take another look at this fund?
If ITTs are yielding 4% would the expected return on the 10% portion be 24%? (minus the added expense on the leveraged bond side, which is…?)
Admiral Fun
If ITTs are yielding 4% would the expected return on the 10% portion be 24%? (minus the added expense on the leveraged bond side, which is…?)
Admiral Fun
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Something like that. Remember it holds a range of treasury futures not just intermediate duration like ZN/ZFAdmiral Fun wrote: ↑Sun Aug 20, 2023 7:02 am Now that bond yields are favorable, is it time to take another look at this fund?
If ITTs are yielding 4% would the expected return on the 10% portion be 24%? (minus the added expense on the leveraged bond side, which is…?)
Admiral Fun
If the mix was yielding %, it would indeed be 24% minus financing. That would mean it contributes 2.4% - costs to your return, plus whatever you get from 0.9*S&P500
Costs are not small right now, I believe, and that earlier post showed the bond yield was negative due to costs recently
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Short term interest rates are higher than intermediate term interest rates at the moment, so I wouldn't think so.Admiral Fun wrote: ↑Sun Aug 20, 2023 7:02 am Now that bond yields are favorable, is it time to take another look at this fund?
If ITTs are yielding 4% would the expected return on the 10% portion be 24%? (minus the added expense on the leveraged bond side, which is…?)
Admiral Fun
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
NTSX duration on the bond side is around 7 years. The bond index it tracks is yielding of over 4%.
https://www.ssga.com/uk/en_gb/instituti ... st-spp7-gy
Does it matter if short term rates are more?
What would be your expected return for the bond side of NTSX?
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
My quick math says that including the leveraged bonds adds an expense ratio of .173% to the bond side (assuming the S&P500 side has an expense simliar to VOO, or .03). 90% of .03 plus 10% of .173 = .2.muffins14 wrote: ↑Sun Aug 20, 2023 8:41 amSomething like that. Remember it holds a range of treasury futures not just intermediate duration like ZN/ZFAdmiral Fun wrote: ↑Sun Aug 20, 2023 7:02 am Now that bond yields are favorable, is it time to take another look at this fund?
If ITTs are yielding 4% would the expected return on the 10% portion be 24%? (minus the added expense on the leveraged bond side, which is…?)
Admiral Fun
If the mix was yielding %, it would indeed be 24% minus financing. That would mean it contributes 2.4% - costs to your return, plus whatever you get from 0.9*S&P500
Costs are not small right now, I believe, and that earlier post showed the bond yield was negative due to costs recently
Expected return of 24% on the bond side minus 1.73 expenses is just over 22% expected return. Compare to maybe 6.5% expected return for S&P500. Am I missing something?
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Of course it matters. The fund is borrowing at very short term rates (5% plus) to invest at intermediate term rates.Admiral Fun wrote: ↑Sun Aug 20, 2023 9:21 amNTSX duration on the bond side is around 7 years. The bond index it tracks is yielding of over 4%.
https://www.ssga.com/uk/en_gb/instituti ... st-spp7-gy
Does it matter if short term rates are more?
What would be your expected return for the bond side of NTSX?
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Your math would be if the fund was 600% treasuries and 90% stocks.Admiral Fun wrote: ↑Sun Aug 20, 2023 9:27 amMy quick math says that including the leveraged bonds adds an expense ratio of .173% to the bond side (assuming the S&P500 side has an expense simliar to VOO, or .03). 90% of .03 plus 10% of .173 = .2.muffins14 wrote: ↑Sun Aug 20, 2023 8:41 amSomething like that. Remember it holds a range of treasury futures not just intermediate duration like ZN/ZFAdmiral Fun wrote: ↑Sun Aug 20, 2023 7:02 am Now that bond yields are favorable, is it time to take another look at this fund?
If ITTs are yielding 4% would the expected return on the 10% portion be 24%? (minus the added expense on the leveraged bond side, which is…?)
Admiral Fun
If the mix was yielding %, it would indeed be 24% minus financing. That would mean it contributes 2.4% - costs to your return, plus whatever you get from 0.9*S&P500
Costs are not small right now, I believe, and that earlier post showed the bond yield was negative due to costs recently
Expected return of 24% on the bond side minus 1.73 expenses is just over 22% expected return. Compare to maybe 6.5% expected return for S&P500. Am I missing something?
NTSX is 60% treasures and 90% stocks
I also think you may be underestimating the current cost of leverage
Crom laughs at your Four Winds
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
We're at the 5 year mark for NTSX now as it was introduced in Aug 2018. Here's to another 5 years!
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
I do like the fund. I sort of feel that I am overpaying due to the expense ratio, but rolling your own futures contracts is yet another thing to keep track of…
NTSX is currently 20% of my portfolio, and I hold it in my Roth
Crom laughs at your Four Winds
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Long-term, I expect a $1 investment in NTSX to return about the same as a $0.60 allocation to intermediate term treasuries. I treat it as 90% US stocks and 60% bonds in my allocationAdmiral Fun wrote: ↑Sun Aug 20, 2023 1:49 pmWhat are your return expectations for the bond side after all costs?
If you look at that data as of august 11:
https://www.wisdomtree.com/investments/ ... s-ntsx.pdf
You see the bond overlay has negative yield, and the cash collateral is positive yield, so the current expected return (per the yield) is basically zero.
I expect that to change when either short term yields fall or long term yields rise more
Crom laughs at your Four Winds
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
I really like this data sheet which is updated weekly I think. My read for this is that NTSX has a net negative drag from the bond portion of the portfolio of -0.75% (not the 4% plus as mentioned above) which is because this is futures contracts and they are what they are. However this is balanced by the short term rates benefiting the cash collateral which is yielding 5.43%. Net yield of 1.37% compared to the SP500 dividend yield of 1.48% so essentially a 0.11% extra fee on top of the 0.2% management fee inherent to the fund. I see that 0.11% as "crash insurance" assuming bonds start behaving more typically with positive returns as rates drop during a crisis.muffins14 wrote: ↑Sun Aug 20, 2023 2:03 pmLong-term, I expect a $1 investment in NTSX to return about the same as a $0.60 allocation to intermediate term treasuries. I treat it as 90% US stocks and 60% bonds in my allocationAdmiral Fun wrote: ↑Sun Aug 20, 2023 1:49 pmWhat are your return expectations for the bond side after all costs?
If you look at that data as of august 11:
https://www.wisdomtree.com/investments/ ... s-ntsx.pdf
You see the bond overlay has negative yield, and the cash collateral is positive yield, so the current expected return (per the yield) is basically zero.
I expect that to change when either short term yields fall or long term yields rise more
Any idea how often or historically what rate the bond overlay has typically contributed? Has it always been negative and what has the range been? I only found this Wisdomtree link in 2022 which the rate rise was in full force.
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
This fund is great in the Roth, getting one exposure to the boring stuff in an efficient manner making room to invest in other things. I do 50% NTSX/NTSI, 50% the Avantis SCV trinity. I also like it in taxable because it seems to be a pretty efficient way to get treasury exposure there, combined with I bonds it allows me to hold less of a straight treasury or muni bond funds in taxable than I otherwise would. I also like that it takes care of rebalancing in taxable in an efficient way.
- Admiral Fun
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Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
So if yield curve stays as it is the bond overlay never makes money? Even with rates as high as they are? This fund is more complex than I first thought.muffins14 wrote: ↑Sun Aug 20, 2023 2:03 pm
If you look at that data as of august 11:
https://www.wisdomtree.com/investments/ ... s-ntsx.pdf
You see the bond overlay has negative yield, and the cash collateral is positive yield, so the current expected return (per the yield) is basically zero.
I expect that to change when either short term yields fall or long term yields rise more
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
That’s my interpretation of the pdf. I could be wrong.Admiral Fun wrote: ↑Mon Aug 21, 2023 8:26 pmSo if yield curve stays as it is the bond overlay never makes money? Even with rates as high as they are? This fund is more complex than I first thought.muffins14 wrote: ↑Sun Aug 20, 2023 2:03 pm
If you look at that data as of august 11:
https://www.wisdomtree.com/investments/ ... s-ntsx.pdf
You see the bond overlay has negative yield, and the cash collateral is positive yield, so the current expected return (per the yield) is basically zero.
I expect that to change when either short term yields fall or long term yields rise more
Short-term rates are really high right now, which makes borrowing expense. Futures costs are like margin, which is like a mortgage. Borrowing isn’t ever free, and in 2023 it’s particularly expensive to borrow.
Crom laughs at your Four Winds
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
I would have thought that was obvious (and the opposite of complex). Short term rates are higher than long term rates. You are borrowing at a high rate to earn a lower rate. Maybe the equity exposure makes up for it, but it seems like a no brainer to market time this fund based on the spread between short and long yields.Admiral Fun wrote: ↑Mon Aug 21, 2023 8:26 pmSo if yield curve stays as it is the bond overlay never makes money? Even with rates as high as they are? This fund is more complex than I first thought.muffins14 wrote: ↑Sun Aug 20, 2023 2:03 pm
If you look at that data as of august 11:
https://www.wisdomtree.com/investments/ ... s-ntsx.pdf
You see the bond overlay has negative yield, and the cash collateral is positive yield, so the current expected return (per the yield) is basically zero.
I expect that to change when either short term yields fall or long term yields rise more
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
I think it’s really not possible to successfully market time the yield curve on an ongoing basis.tj wrote: ↑Mon Aug 21, 2023 9:32 pmI would have thought that was obvious (and the opposite of complex). Short term rates are higher than long term rates. You are borrowing at a high rate to earn a lower rate. Maybe the equity exposure makes up for it, but it seems like a no brainer to market time this fund based on the spread between short and long yields.Admiral Fun wrote: ↑Mon Aug 21, 2023 8:26 pmSo if yield curve stays as it is the bond overlay never makes money? Even with rates as high as they are? This fund is more complex than I first thought.muffins14 wrote: ↑Sun Aug 20, 2023 2:03 pm
If you look at that data as of august 11:
https://www.wisdomtree.com/investments/ ... s-ntsx.pdf
You see the bond overlay has negative yield, and the cash collateral is positive yield, so the current expected return (per the yield) is basically zero.
I expect that to change when either short term yields fall or long term yields rise more
Crom laughs at your Four Winds
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Maybe not, but there are points in time where it seems actionable.muffins14 wrote: ↑Mon Aug 21, 2023 10:05 pmI think it’s really not possible to successfully market time the yield curve on an ongoing basis.tj wrote: ↑Mon Aug 21, 2023 9:32 pmI would have thought that was obvious (and the opposite of complex). Short term rates are higher than long term rates. You are borrowing at a high rate to earn a lower rate. Maybe the equity exposure makes up for it, but it seems like a no brainer to market time this fund based on the spread between short and long yields.Admiral Fun wrote: ↑Mon Aug 21, 2023 8:26 pmSo if yield curve stays as it is the bond overlay never makes money? Even with rates as high as they are? This fund is more complex than I first thought.muffins14 wrote: ↑Sun Aug 20, 2023 2:03 pm
If you look at that data as of august 11:
https://www.wisdomtree.com/investments/ ... s-ntsx.pdf
You see the bond overlay has negative yield, and the cash collateral is positive yield, so the current expected return (per the yield) is basically zero.
I expect that to change when either short term yields fall or long term yields rise more
- Admiral Fun
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- Joined: Mon Jun 04, 2012 8:04 pm
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
Is anyone waiting for the yield curve to normalize before buying this fund?
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
More than zero people are doing that. The problem is that by waiting you would then miss out on the price appreciation. It is difficult to time the bond market, in my opinion, but people are smarter than meAdmiral Fun wrote: ↑Wed Sep 27, 2023 7:08 am Is anyone waiting for the yield curve to normalize before buying this fund?
Crom laughs at your Four Winds
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
There are comments literally right above yours that discuss this.Admiral Fun wrote: ↑Wed Sep 27, 2023 7:08 am Is anyone waiting for the yield curve to normalize before buying this fund?
Re: WisdomTree 90/60 US Efficient Core Fund [NTSX] (formerly US Balanced Fund)
The futures that NTSX hold benefit from interest rate reductions in the same way that normal bonds do?muffins14 wrote: ↑Wed Sep 27, 2023 8:02 amMore than zero people are doing that. The problem is that by waiting you would then miss out on the price appreciation. It is difficult to time the bond market, in my opinion, but people are smarter than meAdmiral Fun wrote: ↑Wed Sep 27, 2023 7:08 am Is anyone waiting for the yield curve to normalize before buying this fund?