What makes this ETF special is the leverage strategy, which aims to improve risk-adjusted returns. (Photo: freepik)
With the Wisdomtree Global Efficient Core ETF (ISIN: IE00077IIPQ8), an innovative global ETF enters the stage that turns classic portfolios on their head. Thanks to leverage, ESG focus and intelligent diversification, it is intended to help investors rebalance return and risk. But how much potential does this approach really have?
90:60 instead of 60:40 – the new recipe for success?
The classic 60:40 strategy – 60 percent stocks and 40 percent bonds – carried investors through the ups and downs of the markets for decades. However, the Wisdomtree Global Efficient Core ETF takes a different approach: instead of the usual weighting, it uses a 90:60 model. 90 percent of the capital flows into shares of large-cap companies from developed markets, while the bond portion is represented via futures on government bonds from the USA, Germany, Great Britain and Japan. This construction enables leverage of 1.5x and promises a higher risk-adjusted return.
The concept sounds promising: in rising markets, the high proportion of stocks should ensure returns, while the bond component cushions fluctuations. Wisdomtree advertises that the portfolio “increases the efficiency of the core investment” and better balances both return and risk.
Sustainability meets performance
Another key element of the ETF is focus on ESG criteria. Only companies that meet high environmental, social and corporate governance standards are included in the portfolio. For many investors, this is a plus point – not only ethically, but also financially: studies suggest that ESG-compliant companies are more robust in the long term.
But ESG also has disadvantages. The strict criteria limit the selection and exclude potentially promising investments. It may also be that the ETF is underrepresented in sectors that are less ESG-friendly but have high returns – such as energy or raw materials.
How much does the innovation cost?
With a total expense ratio (TER) of 0.25 percent, the WisdomTree Global Efficient Core ETF is one of the cheapest products of its kind. However, it is more expensive than many classic global ETFs, some of which cost less than 0.15 percent. Investors pay a premium for the innovative structure and the ESG focus.
The physical replication of the stock portfolio is carried out through optimized sampling, which means that the fund does not buy all the stocks contained in the index, but rather makes a representative selection. This ensures efficiency, but also poses risks if the sampling is not precise enough and the fund deviates from the index.
Opportunities and risks of leverage
What makes this ETF special is the leverage strategy, which aims to improve risk-adjusted returns. Using government bond futures provides an effective leverage of 1.5x, meaning investors can potentially benefit from a higher return while mitigating risk through allocation to bonds. This combination allows the ETF to maintain a high correlation with the stock market while reducing volatility.
Pierre Debru, head of quantitative research at Wisdomtree, emphasizes that this approach aims to increase core investment efficiency and optimize the risk-return profile of a portfolio.
A critical point is the lack of performance history. Since its launch in November 2024, the ETF has had little time to prove its strategy. It remains to be seen whether the concept will work in the long term.
Conclusion: Exciting, but not without its pitfalls
The WisdomTree Global Efficient Core ETF brings a breath of fresh air into the world of core portfolios. With its innovative approach of leverage, ESG focus and intelligent diversification, it primarily appeals to investors who are looking for a modern alternative to classic global ETFs.
As with any innovation, there are risks here too. Leverage can be both detrimental and beneficial, and the strict ESG criteria limit the choice. It also remains to be seen whether the concept is really convincing in difficult market phases.
For investors who are aware of these points and are willing to take a certain amount of risk, the WisdomTree Global Efficient Core ETF could still be an interesting portfolio addition – an experiment with potential, but no guarantee of success.
Disclaimer:
Not investment advice. No call to buy or sell securities.