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A WisdomTree Balanced ETF Of ETFs That Engages With 'Prudent Investing Concepts'

ETF Professor

There are hundreds of funds, mutual funds and exchange traded funds claiming to be “balanced,” with balanced usually meaning a 60-40 split between equities and fixed income. A fund that is 60-40 in one year can change the following year, surprising investors in the process.

The WisdomTree Balanced Income Fund (NYSE: WBAL), which debuted in December, helps ameliorate the balance conundrum faced by so many funds. WBAL is dedicated to the 60-40 approach. If its allocations drift, the fund is rebalanced for a 60-percent allocation to stocks and 40 percent to bonds. WBAL's holdings are other ETFs.

“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 points, 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,” WisdomTree in a Monday note.

More WBAL Details

WBAL holds 11 ETFs, according to issuer data. Nine of those funds are WisdomTree products. WBAL's top two holdings are the WisdomTree Barclays Yield Enhanced US Aggregate Bond Fund (NYSE: AGGY) and the WisdomTree High Dividend Fund (NYSE: DHS). AGGY and DHS combine for 39.1 percent of WBAL's weight.

The five equity-based ETFs held by WBAL are all WisdomTree dividend funds. That quintet provides exposure to U.S. large-caps, developed markets equities and emerging markets. WBAL's fixed income holdings include exposure to U.S. Treasuries, mortgage-backed securities, emerging markets debt, corporate bonds and interest rate hedging strategies.

“WBAL has a threefold engagement with prudent investing concepts: for one, it buys equities and liquidates bonds after the former underperforms and vice versa,” said WisdomTree. “Second, it buys beaten-down asset class sleeves at the underlying ETF level at rebalancing time. Third, its subcomponent ETFs engage value screens at the individual security level.”

The Right Mix

WBAL sports a 30-day SEC yield of 3.07 percent. That is more than what investors find on 10-year Treasuries and many U.S. dividend ETFs.

“As we dig into WBAL, built-in common sense jumps out,” adds WisdomTree. “It engages in disciplined rebalancing, its expense ratio is nearly half the cost of the typical allocation fund, it taps into smart beta factors and, of course, it comes in an ETF structure.”

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