WisdomTree and Jeremy Siegel, professor of finance at the University of Pennsylvania’s Wharton School, have urged investors to consider alternatives to the traditional 60% stock, 40% bond allocation.
The latest developments in their mission are two model portfolios made up entirely of exchange-traded funds: the Siegel-WisdomTree Global Equity Model Portfolio and the Siegel-WisdomTree Longevity Model Portfolio, CNBC said.
The two funds, offered first on TD Ameritrade’s Model Market Center platform, take inspiration from two of Siegel’s books — “Stocks for the Long Run” and “The Future for Investors” — in an effort to provide investors with higher returns in a declining interest-rate environment.
“We believe that the old 60/40 model just won’t be able to cut it anymore,” Siegel, who is also a senior investment strategy advisor at WisdomTree, recently told CNBC.
“This environment of low interest rates is not going to change,” Siegel said, noting that the dividend yield on the S&P 500 is higher than the U.S. 10-year Treasury’s 1.5% yield. “How is [that] ... going to give you enough income?” he asked.
“That’s why we recommend 75/25 as the equity/fixed-income allocation,” he said, adding that it “would be the best way for those approaching retirement to establish their assets to get enough income and gains so they can maintain spending through retirement.”
Other “powerful demographic factors” such as the aging of the global population, longer average life expectancy, a broader inclination to avoid risk and slower growth in the overall markets as additional depressants for Treasury yields, CNBC quoted Siegel as saying.
“All these factors are going to keep these interest rates in these levels very long, and you cannot survive on a one-and-a-half-percent nominal interest rate,” he said.
“Look at the TIPS yield. The real interest rates are negative now,” he said, referring to the Treasury Inflation-Protected Securities version of the U.S. 10-year Treasury, which is adjusted based on consumer price patterns.
“It cannot maintain spending streams at all. Dividends on stocks are going to be the new bond in terms of thinking about retirement.”
Meanwhile, strategists at Citigroup have cautioned against a sense of euphoria and “substantive” complacency in financial markets. JPMorgan is telling clients to rein in risk, trimming its overweight call on equities to 5% relative to a benchmark allocation, from 7%, Bloomberg explained.
“Economic spillovers from China to the rest of the world in the event of more adverse scenarios are likely to be significant,” according to JPMorgan Chase & Co. strategists.
What makes all this is so striking: Investors are shrugging off virus-related concerns while also betting on an uptick in growth, according to Nomura Securities. The telltale sign is the ramp-up in European stocks to all-time highs.
“As the coronavirus issue passes the panic stage, scenarios for renewed economic growth seem to be gaining new life,” wrote Naka Matsuzawa, the firm’s strategist in Tokyo wrote in a note.
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