WisdomTree 90/60 U.S. Balanced Fund [NTSX]

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kevinf
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WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by kevinf » Wed Jan 29, 2020 10:56 pm

Shenanigans occurred with the prior thread dedicated to this fund. However, the discussion was interesting and informative and I'd certainly like to keep the conversation going regarding NTSX.

I went 50/50 NTSX/VTI in my Roth at the beginning of the year. So far NTSX has done exactly what I wanted it to, which was reduce draw-down while maintaining strong returns. NTSX lagged VTI slightly until the Coronavirus scare knocked the market down a notch, which then had NTSX leading slightly. NTSX remains in the lead so far and I'm interested in watching the show for the remainder of the year.

I'm considering keeping roughly 50/50 NTSX/VTI allocated in my Roth, with VTI as a hedge against the possibility of "stagflation" decimating NTSX. As I was 100% VTI before this may actually be a slightly less aggressive position in many regards. :mrgreen:
Last edited by kevinf on Thu Jan 30, 2020 4:59 pm, edited 1 time in total.

guyinlaw
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by guyinlaw » Wed Jan 29, 2020 11:21 pm

Here is a link to original thread to refer to posts from 2018 to now

viewtopic.php?f=10&t=256020

Another thread discussing what to pair with NTSX

viewtopic.php?f=10&t=301933

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kevinf
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by kevinf » Wed Jan 29, 2020 11:48 pm

Looks like the original thread was restored and unlocked so all is well.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by LadyGeek » Thu Jan 30, 2020 4:20 pm

The original thread is now locked. [Deleted] [Re: (NEW) WisdomTree 90/60 U.S. Balanced Fund]

Let's continue the discussion here.
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by crystalbank » Thu Jan 30, 2020 4:45 pm

How big of an issue is the lack of liquidity? I get that when buying I can do a market order and it's usually fulfilled within the range of bid/ask spread. But what about selling? If I need to sell significant shares in a single day of an ETF that's not liquid, will I get hosed on the spread?

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by MotoTrojan » Thu Jan 30, 2020 4:47 pm

crystalbank wrote:
Thu Jan 30, 2020 4:45 pm
How big of an issue is the lack of liquidity? I get that when buying I can do a market order and it's usually fulfilled within the range of bid/ask spread. But what about selling? If I need to sell significant shares in a single day of an ETF that's not liquid, will I get hosed on the spread?
Selling should also fall within the bid/ask spread. There is nothing more liquid out there for equity than S&P500, and for bonds than treasuries, so a market-maker can help you out even if nobody else wants to trade with you.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by rascott » Thu Jan 30, 2020 4:49 pm

crystalbank wrote:
Thu Jan 30, 2020 4:45 pm
How big of an issue is the lack of liquidity? I get that when buying I can do a market order and it's usually fulfilled within the range of bid/ask spread. But what about selling? If I need to sell significant shares in a single day of an ETF that's not liquid, will I get hosed on the spread?
No.... you should only care about the liquidity of the underlying.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by rascott » Thu Jan 30, 2020 4:51 pm

I bought a slug of NTSX this morning. Just dropped a market order in and it was immediately filled at roughly the midway point of the large bid/ ask quoted spread.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by corp_sharecropper » Thu Jan 30, 2020 5:34 pm

I read at least some parts of the old thread before giving up for the same reasons we now have this new thread. I'm interested in this topic but I'm just a regular Joe who has taken an interest, has no professional responsibilities relating to investing, and I refuse to invest in something I don't understand (I could not even begin to explain this to someone at a cocktail party). But I really, really, want to understand this ETF, because right now it tickles my "if it's too good to be true..." sensor but I'm certain if I could learn how it all works then things would make sense.

I'm going to summarize what I THINK is my current understanding, then ask a question, and hope that someone can come down to my level and explain it to me in a language/manner that makes sense.

What I think I know:

~90% of the fund is invested in US large cap equities expected to perform similarly to the SP500. Now, here's where it gets murky for me, the other 10% is somehow "collateral" for what should "feel" like a portfolio of 60% treasuries. Somehow this is not the same as a leveraged ETF. Something to do with futures (hint: I don't really know much about that other than the standard definition of futures contracts market but I just can't put the pieces together in my head).

To summarize: through some innovative approach, you get the upside of 90% equities with the "safety" of 60% treasuries. This sentence right here is what sets off all the alarm bells for me and my next questions would be "ok, so you're telling me in all the creativity you see on Wall Street, no one has thought of this before now and securitized it?" and "ok, since it's so great, why isn't everyone doing this right now?". Like I said, I really want to understand this because I'm sure it will make sense to me once I see where the risk is that warrants the rewards or where the "free lunch" isn't actually free... But I'm too simple to figure it out without boglehead help.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by ChrisBenn » Thu Jan 30, 2020 5:43 pm

You can view the intraday nav at this ticker: https://finance.yahoo.com/quote/%5ENTSX ... %5ENTSX-IV ; if you wanted to be extra precise you could use that to price a limit order (to either try for a discount sell, or include a bit to account for normal spread).

As other mentioned, you are really limited by the liquidity of the underlying (s&p 500 stocks, treasury futures) - both with have oceanic liquidity. Bloomberg calls it Implied Liquidity (at least I think they trademarked that term?) For a retail participant it is technically one order removed as you aren't going to be triggering creation/redemption units yourself - so you are are dependent on a MM to arbitrage the situation -- but realistically that's quite common and true for other securities as well. If you don't want to have faith in that look at the intraday NAV above and limit away.

Looks like in the past few months the premium has ranged from 0 to 0.3%.
I think a bigger spread (premium/discount) is the main impact of the lower volume - but we are still probably talking low tens of basis point.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by mr.masku » Thu Jan 30, 2020 5:46 pm

corp_sharecropper wrote:
Thu Jan 30, 2020 5:34 pm
"ok, so you're telling me in all the creativity you see on Wall Street, no one has thought of this before now and securitized it?"
It isn't the first time (though I have to say there's always a first time for everything). See the PIMCO StocksPlus funds, e.g. PSLDX - they've been around since 2007. Admittendly the PIMCO funds do things differently (Bonds + Stock Futures). The concept of leveraging up the Security Market Line comes from basic Finance Theory.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by PluckyDucky » Thu Jan 30, 2020 5:49 pm

mr.masku wrote:
Thu Jan 30, 2020 5:46 pm
corp_sharecropper wrote:
Thu Jan 30, 2020 5:34 pm
"ok, so you're telling me in all the creativity you see on Wall Street, no one has thought of this before now and securitized it?"
It isn't the first time (though I have to say there's always a first time for everything). See the PIMCO StocksPlus funds, e.g. PSLDX - they've been around since 2007. Admittendly the PIMCO funds do things differently (Bonds + Stock Futures). The concept of leveraging up the Security Market Line comes from basic Finance Theory.
And the specific idea has been around even longer as demonstrated by the Cliff Asness article from the 90s.

Making an ETF for it is more than just putting the parts together. You have to get the players together too. Maybe nobody was willing to make an ETF before or regulations made it difficult.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by ChrisBenn » Thu Jan 30, 2020 6:09 pm

corp_sharecropper wrote:
Thu Jan 30, 2020 5:34 pm
~90% of the fund is invested in US large cap equities expected to perform similarly to the SP500. Now, here's where it gets murky for me, the other 10% is somehow "collateral" for what should "feel" like a portfolio of 60% treasuries. Somehow this is not the same as a leveraged ETF. Something to do with futures (hint: I don't really know much about that other than the standard definition of futures contracts market but I just can't put the pieces together in my head).
It is leverage and definitely a leveraged ETF. But quite often when people talked about leveraged ETF's they are talking about the daily reset ETF's. This don't hold leverage overnight, but just during trading days. This can have unanticipated effects - and also typically allows for much larger leverage levels.

Otherwise your understanding is correct; a future is just a contract between two parties that promises the delivery of something in the future for a fixed price now. Various add-ons (cash settlement, daily settlement, etc.) of some futures make them "easier" to work with - but they are all mostly the same thing under the hood. For treasury contracts you can buy them and you have to post collateral to cover cases of their value dropping. Here 10% is kept liquid; if the treasury fund dropped more than that the fund would have to sell off stocks to cover the collateral requirements.

To summarize: through some innovative approach, you get the upside of 90% equities with the "safety" of 60% treasuries. This sentence right here is what sets off all the alarm bells for me and my next questions would be "ok, so you're telling me in all the creativity you see on Wall Street, no one has thought of this before now and securitized it?" and "ok, since it's so great, why isn't everyone doing this right now?".
In the case of rising interest rates it's feasible that equities would drop as well -- and in this case you would have 150% exposure - so you would drop more than an unleveraged 60/40. Basically as long as equities and treasuries keep a low correlation while both having an upward trend this strategy should have returns similar to 100% equities with a lower volatility. It's going to probably perform pretty similarly to TSM over a long horizon (assuming we don't have a long sustained interest rate change trend over the period). I think it's more a question of what is the slightly lower volatility worth for your use case?

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by crystalbank » Thu Jan 30, 2020 6:09 pm

rascott wrote:
Thu Jan 30, 2020 4:49 pm
crystalbank wrote:
Thu Jan 30, 2020 4:45 pm
How big of an issue is the lack of liquidity? I get that when buying I can do a market order and it's usually fulfilled within the range of bid/ask spread. But what about selling? If I need to sell significant shares in a single day of an ETF that's not liquid, will I get hosed on the spread?
No.... you should only care about the liquidity of the underlying.
MotoTrojan wrote:
Thu Jan 30, 2020 4:47 pm
crystalbank wrote:
Thu Jan 30, 2020 4:45 pm
How big of an issue is the lack of liquidity? I get that when buying I can do a market order and it's usually fulfilled within the range of bid/ask spread. But what about selling? If I need to sell significant shares in a single day of an ETF that's not liquid, will I get hosed on the spread?
Selling should also fall within the bid/ask spread. There is nothing more liquid out there for equity than S&P500, and for bonds than treasuries, so a market-maker can help you out even if nobody else wants to trade with you.

Good to know!

corp_sharecropper
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by corp_sharecropper » Thu Jan 30, 2020 6:37 pm

ChrisBenn wrote:
Thu Jan 30, 2020 6:09 pm
corp_sharecropper wrote:
Thu Jan 30, 2020 5:34 pm
~90% of the fund is invested in US large cap equities expected to perform similarly to the SP500. Now, here's where it gets murky for me, the other 10% is somehow "collateral" for what should "feel" like a portfolio of 60% treasuries. Somehow this is not the same as a leveraged ETF. Something to do with futures (hint: I don't really know much about that other than the standard definition of futures contracts market but I just can't put the pieces together in my head).
It is leverage and definitely a leveraged ETF. But quite often when people talked about leveraged ETF's they are talking about the daily reset ETF's. This don't hold leverage overnight, but just during trading days. This can have unanticipated effects - and also typically allows for much larger leverage levels.

Otherwise your understanding is correct; a future is just a contract between two parties that promises the delivery of something in the future for a fixed price now. Various add-ons (cash settlement, daily settlement, etc.) of some futures make them "easier" to work with - but they are all mostly the same thing under the hood. For treasury contracts you can buy them and you have to post collateral to cover cases of their value dropping. Here 10% is kept liquid; if the treasury fund dropped more than that the fund would have to sell off stocks to cover the collateral requirements.

To summarize: through some innovative approach, you get the upside of 90% equities with the "safety" of 60% treasuries. This sentence right here is what sets off all the alarm bells for me and my next questions would be "ok, so you're telling me in all the creativity you see on Wall Street, no one has thought of this before now and securitized it?" and "ok, since it's so great, why isn't everyone doing this right now?".
In the case of rising interest rates it's feasible that equities would drop as well -- and in this case you would have 150% exposure - so you would drop more than an unleveraged 60/40. Basically as long as equities and treasuries keep a low correlation while both having an upward trend this strategy should have returns similar to 100% equities with a lower volatility. It's going to probably perform pretty similarly to TSM over a long horizon (assuming we don't have a long sustained interest rate change trend over the period). I think it's more a question of what is the slightly lower volatility worth for your use case?
Do you mean allocating 40% of your portfolio to NTSX will perform similarly to the same % of VTI (edit: not VTI, whatever vanguards sp500 or large cap core fund is, voo?) over a decent (years) time? If so, what's the point? Are you saying it will perform similarly but maybe have less volatility (and so maybe protect one from one's investing deamons along the way)? That makes some sense to me at least. Thanks for the explanation so far.

Uncorrelated
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by Uncorrelated » Thu Jan 30, 2020 7:42 pm

The upside of 90% equities and safety of 60% bonds is overselling this fund by a large amount.

Compared to a 100% stock portfolio, a portfolio of (just an example) 50% stocks and 50% bonds (total bond market) has much lower risk and much lower drawdowns. What's important to realize is that the majority of the reduction of risk comes from the reduction in stocks, not from the addition of bonds. A portfolio of 50% stocks and 50% cash will have nearly identical return characteristics.

And that brings us to NTSX. The risk (measured by standard deviation) of NTSX is roughly comparable to a portfolio of 95% stocks and 5% stocks. The returns are a bit higher, about 0.2% higher than a 100% stock portfolio after factoring in expenses. I drew this conclusion with a backtest in simba's backtesting spreadsheet (since 1934) using 90% total stock market, 60% total bond market and -50% t-bills.

NTSX is a fund to replace 90/10 or 100/10, not a fund to replace 60/40. Also, it is quite easy to put together a factor portfolio that has had higher returns and less risk than simulated NTSX in the past, so I would add that NTSX is suited for people who currently have 90/10 or 100/0 but don't believe in factors. If you fit that target audience I think it's a good idea to consider NTSX. I don't believe in the whole 'portable alpha' idea.

Small caveat about this backtest and NTSX is that we currently have no data on the borrowing cost of treasuries in recessions. We only have data going back to 2014, during which time the borrowing rate was slightly negative.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by muffins14 » Thu Jan 30, 2020 8:57 pm

Uncorrelated wrote:
Thu Jan 30, 2020 7:42 pm
... so I would add that NTSX is suited for people who currently have 90/10 or 100/0 but don't believe in factors. ...
In my case, I use about 50% NTSX and 50% SCV in my US portion of equities, so aside from the leveraged bonds piece, I consider it a 95% equity allocation that also has a mild tilt to small and value (0.2 and 0.2). Do you feel it would cheaper / more efficient to just go for something like 95% mix of VTI + SCV to get the desired factor exposure, plus enough long-duration bonds to match the duration exposure of the futures in NTSX?

For example if 50% NTSX = 50% * 60% bonds = 30% exposure to treasuries with average duration ~7 years, one could get similar duration exposure by using a 5% slice of EDV.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by Lee_WSP » Thu Jan 30, 2020 9:00 pm

EDV behaves very differently than leveraged total bond. The drawdowns are brutal.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by caklim00 » Thu Jan 30, 2020 9:01 pm

muffins14 wrote:
Thu Jan 30, 2020 8:57 pm
Uncorrelated wrote:
Thu Jan 30, 2020 7:42 pm
... so I would add that NTSX is suited for people who currently have 90/10 or 100/0 but don't believe in factors. ...
In my case, I use about 50% NTSX and 50% SCV in my US portion of equities, so aside from the leveraged bonds piece, I consider it a 95% equity allocation that also has a mild tilt to small and value (0.2 and 0.2). Do you feel it would cheaper / more efficient to just go for something like 95% mix of VTI + SCV to get the desired factor exposure, plus enough long-duration bonds to match the duration exposure of the futures in NTSX?

For example if 50% NTSX = 50% * 60% bonds = 30% exposure to treasuries with average duration ~7 years, one could get similar duration exposure by using a 5% slice of EDV.
Or just buy 5 and/or 10 year treasury future contracts. Someone on here posted how risk adjusted return is actually higher using shorter duration. I think I saw it argued that pension funds drive up t-bond prices or something.

muffins14
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by muffins14 » Thu Jan 30, 2020 9:05 pm

I know ... I've been lagging on exploring futures due to some inertia on opening up another account vs one-stop-shopping. Have you found rebalancing via your other bonds/accounts to be more of a chore given that the contracts can fluctuate so much?

edited to add: add you're keeping the funds for margin in cash-cash, rather than in t-bills because IBKR doesn't allow t-bills as collateral?

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by caklim00 » Thu Jan 30, 2020 9:48 pm

muffins14 wrote:
Thu Jan 30, 2020 9:05 pm
I know ... I've been lagging on exploring futures due to some inertia on opening up another account vs one-stop-shopping. Have you found rebalancing via your other bonds/accounts to be more of a chore given that the contracts can fluctuate so much?

edited to add: add you're keeping the funds for margin in cash-cash, rather than in t-bills because IBKR doesn't allow t-bills as collateral?
I don't rebalance that often. I have my 401ks set to autoselect bonds vs equity and when I need to make a taxable contribution I then consider whether or not I need to up my bonds in my 401ks.

Yeah, keeping margin in cash. I've started buying a cashlike etf when the balance gets more than 4 times the margin requirements. I don't monitor it that closely, I do rely on getting notifications from IKBR. Schwab also does futures if you have an account there.

Uncorrelated
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by Uncorrelated » Fri Jan 31, 2020 2:17 pm

muffins14 wrote:
Thu Jan 30, 2020 8:57 pm
Uncorrelated wrote:
Thu Jan 30, 2020 7:42 pm
... so I would add that NTSX is suited for people who currently have 90/10 or 100/0 but don't believe in factors. ...
In my case, I use about 50% NTSX and 50% SCV in my US portion of equities, so aside from the leveraged bonds piece, I consider it a 95% equity allocation that also has a mild tilt to small and value (0.2 and 0.2). Do you feel it would cheaper / more efficient to just go for something like 95% mix of VTI + SCV to get the desired factor exposure, plus enough long-duration bonds to match the duration exposure of the futures in NTSX?

For example if 50% NTSX = 50% * 60% bonds = 30% exposure to treasuries with average duration ~7 years, one could get similar duration exposure by using a 5% slice of EDV.
I don't like EDV. I've tested various bond funds in a mean-variance optimizer and the only bond funds it really likes are total bond market and TMF. EDV has long duration and low expense ratio, but you're not being compensated for that extra expense ratio because of a high-beta anomaly in bonds. TMF isn't particularly impressive either, but it takes up much less space in your portfolio.

Once we add in NTSX things start to be a bit more complicated. Running a simulation with a few basic funds shows a large preference for NTSX. Once we add factor funds into the mix, a combination of small cap value, value and TMF replaces NTSX completely. But I'm not sure how accurate this conclusion is and one probably wouldn't be willing to go 100% in value/svc anyway.

My biggest complaint about NTSX in your portfolio is that if you dilute it with some tilts and international funds, the bond portion just doesn't seem to be all that noticeable. Having that said, I think it's a clear but small win vs total stock market.

Of course you can also use futures. I'm not really convinced it's possible for the average investor to do better than NTSX/TMF after considering friction costs. But if you think you can do it, go for it.

muffins14
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by muffins14 » Fri Jan 31, 2020 8:17 pm

It feels non-intuitive that TMF would be preferred over EDV. Is the 24 year duration of EDV that much more problematic than 18 on TLT/TMF in terms of some anomaly at higher duration, or volatility decay?

I currently get about half my bond exposure from NTSX, and half from EDV, for a total of 28% on a portfolio that's 87% equity and 28% bonds (leverage via ntsx)

Happy to learn if others think it would be more efficient to use another approach rather than NTSX+EDV, since my goal isn't to be at or above 100% equity, but I'd like to maintain my tilt toward SCV and am clearly too lazy to roll my own futures.

I'm also not confident enough on the factor side to lean into something heavier than 60% SCV, nor do I think I have the appetite go with TMF as the bond portion due to the higher expense ratio ... maybe I'm being too difficult

current portfolio is exactly like the one you think is suboptimal:
30% NTSX
25% us SCV
10% international
15% international SCV
10% VWO
10% EDV

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by 305pelusa » Sat Feb 01, 2020 7:31 am

muffins14 wrote:
Fri Jan 31, 2020 8:17 pm
It feels non-intuitive that TMF would be preferred over EDV. Is the 24 year duration of EDV that much more problematic than 18 on TLT/TMF in terms of some anomaly at higher duration, or volatility decay?

I currently get about half my bond exposure from NTSX, and half from EDV, for a total of 28% on a portfolio that's 87% equity and 28% bonds (leverage via ntsx)

Happy to learn if others think it would be more efficient to use another approach rather than NTSX+EDV, since my goal isn't to be at or above 100% equity, but I'd like to maintain my tilt toward SCV and am clearly too lazy to roll my own futures.

I'm also not confident enough on the factor side to lean into something heavier than 60% SCV, nor do I think I have the appetite go with TMF as the bond portion due to the higher expense ratio ... maybe I'm being too difficult

current portfolio is exactly like the one you think is suboptimal:
30% NTSX
25% us SCV
10% international
15% international SCV
10% VWO
10% EDV
To be clear, the reason why “TMF is preferred over EDV” is purely based on past data. As Uncorrolated says, it’s a bet-against-beta anomaly. Here’s some things to consider:
1) Nothing EDV-like existed back in those periods. It’s all artificial, simulated data.
2) Even if it did exist, it will only continue to exist from limits to arbitrage (as there is no risk-based explanation AFAIK). If every one could freely swap things like EDV for things like leveraged bonds, they would. So it relies on institutions being unable to arbitrage this away so retail benefits.
3) Even if it did exist back then, and the limits of arbitrage stayed, this requires a similar level of faith to the bet against beta stock anomaly (know as Low Volatility). Do you invest in that too? If you don’t, whatever reasons you used most likely apply here here too.

My take? Leveraged bonds, EDV, etc is getting into extremely nit picky, optimize-past-data, data mining, cute analysis. You will come to your own conclusions but just wanted to give you a little bit of perspective.

Uncorrelated
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by Uncorrelated » Sat Feb 01, 2020 11:51 am

muffins14 wrote:
Fri Jan 31, 2020 8:17 pm
It feels non-intuitive that TMF would be preferred over EDV. Is the 24 year duration of EDV that much more problematic than 18 on TLT/TMF in terms of some anomaly at higher duration, or volatility decay?

I currently get about half my bond exposure from NTSX, and half from EDV, for a total of 28% on a portfolio that's 87% equity and 28% bonds (leverage via ntsx)

Happy to learn if others think it would be more efficient to use another approach rather than NTSX+EDV, since my goal isn't to be at or above 100% equity, but I'd like to maintain my tilt toward SCV and am clearly too lazy to roll my own futures.

I'm also not confident enough on the factor side to lean into something heavier than 60% SCV, nor do I think I have the appetite go with TMF as the bond portion due to the higher expense ratio ... maybe I'm being too difficult

current portfolio is exactly like the one you think is suboptimal:
30% NTSX
25% us SCV
10% international
15% international SCV
10% VWO
10% EDV
I think the overall portfolio is quite good, the factor tilt and stock:bond ratio is extremely close to what I plan to use.

According to simba's backtesting spreadsheet based on simulated data since 1955 (the longest we have available), TMF has higher average returns than EDV and a slightly higher sharpe ratio (EDV has the lowest sharpe ratio out of all bond funds). If we replace 10% EDV by 5% TMF and 5% t-bills the results are basically identical. TMF is just more space efficient.

My results for your portfolio (since 1955, substituting international and emerging market for US due to data availability issues) are 7.22% real CAGR for EDV and 7.44% for TMF. Standard deviation 16.09% vs 16.26%. That is not a huge improvement but it was slightly better. We're definitely nitpicking here, especially because it's only 10% of your portfolio.

pepys
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by pepys » Sat Feb 01, 2020 3:40 pm

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by jhfenton » Sat Feb 01, 2020 5:42 pm

pepys wrote:
Sat Feb 01, 2020 3:40 pm
I'm confused to as why market orders work out this well. The prospectus says that shares will only be issued/redeemed in very large blocks, so why aren't smaller trades getting killed on the spread?
Market-making is a competitive business. If a market-maker tries to make extra excessive profit on a trade, another will undercut them.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by SamuelPickwick » Sat Feb 01, 2020 6:04 pm

jhfenton wrote:
Sat Feb 01, 2020 5:42 pm
pepys wrote:
Sat Feb 01, 2020 3:40 pm
I'm confused to as why market orders work out this well. The prospectus says that shares will only be issued/redeemed in very large blocks, so why aren't smaller trades getting killed on the spread?
Market-making is a competitive business. If a market-maker tries to make extra excessive profit on a trade, another will undercut them.
That doesn't really address what I believe was at the heart of the question. Market maker competition can exist for any stock along with orders, retail or otherwise, at the bid and ask. With NTSX in particular, there is talk of the liquidity of the underlying securities. This is true, but a market maker can't take an eighteen share odd lot trade and resolve it into the constituent parts to complete an arbitrage. They can though hedge to eliminate risk on that 18 share lot they purchased, and perhaps they do. I have no idea. Otherwise, the market makers responsibility to maintain an orderly market and have shares in a bucket to accomplish that is similar to any other security traded on the market. So I think the question is, since 100K unit lots are required for creation/deletion (along with a 0.08% fee to WisdomTree), how does the liquidity (ability to easily convert to/from underlying securities and create/delete units) come into play on small lot trades since those trades can not take advantage of arbitrage with the ETF sponsor.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by pepys » Sat Feb 01, 2020 7:26 pm

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by Uncorrelated » Sun Feb 02, 2020 9:09 am

I can think of two ways in which the market maker can work:


Purchase NTSX shares in advance. Then purchase S&P500 futures and treasury futures to hedge the allocation. This approach is relatively straightforward with NTSX, but might be problematic with actively traded ETF's (for example, vanguard's VFMF) that have no known or stable composition.

Don't purchase NTSX shares in advance. Instead borrow shares on the market and sell them. Hedge the resulting exposure with S&P500 and treasury futures.

WisdomTree may have an agreement with a market market in which they pay for liquidity, since it is obviously in WisdomTree's best interest to have a liquid marketplace. Without an agreement with a market maker it's probably unlikely your ETF will get listed at an exchange. The exchanges don't like to list illiquid crap.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by danielc » Sun Feb 02, 2020 10:38 am

305pelusa wrote:
Sat Feb 01, 2020 7:31 am
To be clear, the reason why “TMF is preferred over EDV” is purely based on past data. As Uncorrolated says, it’s a bet-against-beta anomaly. Here’s some things to consider:
1) Nothing EDV-like existed back in those periods. It’s all artificial, simulated data.
2) Even if it did exist, it will only continue to exist from limits to arbitrage (as there is no risk-based explanation AFAIK). If every one could freely swap things like EDV for things like leveraged bonds, they would. So it relies on institutions being unable to arbitrage this away so retail benefits.
3) Even if it did exist back then, and the limits of arbitrage stayed, this requires a similar level of faith to the bet against beta stock anomaly (know as Low Volatility). Do you invest in that too? If you don’t, whatever reasons you used most likely apply here here too.

My take? Leveraged bonds, EDV, etc is getting into extremely nit picky, optimize-past-data, data mining, cute analysis. You will come to your own conclusions but just wanted to give you a little bit of perspective.
Can you explain to me how EDV is related to "bet against beta"? My limited understanding is that "bet against beta" is the idea that low-beta stocks have higher risk-adjusted returns, and high-beta stocks have lower risk adjusted returns. But what does that have to do with bonds, EDV, and TMF?

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by 305pelusa » Sun Feb 02, 2020 11:11 am

danielc wrote:
Sun Feb 02, 2020 10:38 am
305pelusa wrote:
Sat Feb 01, 2020 7:31 am
To be clear, the reason why “TMF is preferred over EDV” is purely based on past data. As Uncorrolated says, it’s a bet-against-beta anomaly. Here’s some things to consider:
1) Nothing EDV-like existed back in those periods. It’s all artificial, simulated data.
2) Even if it did exist, it will only continue to exist from limits to arbitrage (as there is no risk-based explanation AFAIK). If every one could freely swap things like EDV for things like leveraged bonds, they would. So it relies on institutions being unable to arbitrage this away so retail benefits.
3) Even if it did exist back then, and the limits of arbitrage stayed, this requires a similar level of faith to the bet against beta stock anomaly (know as Low Volatility). Do you invest in that too? If you don’t, whatever reasons you used most likely apply here here too.

My take? Leveraged bonds, EDV, etc is getting into extremely nit picky, optimize-past-data, data mining, cute analysis. You will come to your own conclusions but just wanted to give you a little bit of perspective.
Can you explain to me how EDV is related to "bet against beta"? My limited understanding is that "bet against beta" is the idea that low-beta stocks have higher risk-adjusted returns, and high-beta stocks have lower risk adjusted returns. But what does that have to do with bonds, EDV, and TMF?
I'm going off of what Uncorrolated has found but I believe the theory is that leveraged intermediate bonds should have similar returns to very LT bonds like EDV. Similar to how leveraged Low Vol stocks should have similar returns to high Vol stocks.

But historically, we have found Low Vol stocks have higher Sharpes than High Vol stocks. Which means leveraged Low Vol stocks produced higher returns at the same risk than High Vol stocks. That's the bet-against-beta anomaly.

Apparently, there's one with bonds too where Intermediate bonds have higher Sharpes than LT bonds. So leveraging Int. bonds produced higher returns than simply buying LT bonds (like EDV).

This isn't a risk-based anomaly; if it existed historically, it was due to limits of arbitrage for the past 50 years. Nowadays, with 9k+ hedgefunds who all know about it, plus plenty of retail products too (like TMF), I just don't feel as confident about the anomaly continuing. The only factors that existed 90 years ago that I think might remain are the ones that actually cannot be arbitraged and have risk-based explanations (mainly value, but also size).

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by Uncorrelated » Sun Feb 02, 2020 12:31 pm

danielc wrote:
Sun Feb 02, 2020 10:38 am
305pelusa wrote:
Sat Feb 01, 2020 7:31 am
To be clear, the reason why “TMF is preferred over EDV” is purely based on past data. As Uncorrolated says, it’s a bet-against-beta anomaly. Here’s some things to consider:
1) Nothing EDV-like existed back in those periods. It’s all artificial, simulated data.
2) Even if it did exist, it will only continue to exist from limits to arbitrage (as there is no risk-based explanation AFAIK). If every one could freely swap things like EDV for things like leveraged bonds, they would. So it relies on institutions being unable to arbitrage this away so retail benefits.
3) Even if it did exist back then, and the limits of arbitrage stayed, this requires a similar level of faith to the bet against beta stock anomaly (know as Low Volatility). Do you invest in that too? If you don’t, whatever reasons you used most likely apply here here too.

My take? Leveraged bonds, EDV, etc is getting into extremely nit picky, optimize-past-data, data mining, cute analysis. You will come to your own conclusions but just wanted to give you a little bit of perspective.
Can you explain to me how EDV is related to "bet against beta"? My limited understanding is that "bet against beta" is the idea that low-beta stocks have higher risk-adjusted returns, and high-beta stocks have lower risk adjusted returns. But what does that have to do with bonds, EDV, and TMF?

The theory comes from this paper: http://pages.stern.nyu.edu/~lpederse/pa ... stBeta.pdf (pdf)

For all equity markets (except austria) and asset classes, the Sharpe ratio declines with higher beta. This effect supposedly originates from leverage constraints. Suppose that you have asset A with a return of 5% and stddev of 10%, and asset B with a return of 10% and stddev of 25%. The optimal approach is to purchase asset A and leverage, right? But individual investors are unlikely to have access to cheap leverage and/or don't want to deal with it, so they purchase asset B. There are also incentive issues that cause hedge funds to purchase high-beta stocks. My local tax laws also incentivize high beta stocks :annoyed

Image

This effect has been observed in stocks, government bonds, corporate bonds, commodities. Basically everywhere. Taking some concrete numbers, since 1955 ITT (VFITX), LTT (VUSTX) and EDV have a sharpe ratio of .23, .18 and .13 respectively. But if you are leverage constrained, EDV may be preferred above ITT.

For equities it can be seen as an alternative to size/value. But due to the black box nature of low volatility funds I prefer size/value (personal opinion).

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by muffins14 » Sun Feb 02, 2020 7:55 pm

I suppose the question I have in that case is should I expect the fees on a TMF + short-term instrument to overwhelm the potential benefit it might have over a pure EDV approach with the same duration.

Portfolio visualizer seems to say yes, checking since 2010 by comparing 80% VTI + 20% EDV vs 80% VTI + 11%VGSH + 9% TMF, the TMF route has slightly higher return and sharp ratio, but obviously this wasn't a rigorous attempt to understand performance in different market conditions

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by 305pelusa » Sun Feb 02, 2020 8:53 pm

muffins14 wrote:
Sun Feb 02, 2020 7:55 pm
I suppose the question I have in that case is should I expect the fees on a TMF + short-term instrument to overwhelm the potential benefit it might have over a pure EDV approach with the same duration.

Portfolio visualizer seems to say yes, checking since 2010 by comparing 80% VTI + 20% EDV vs 80% VTI + 11%VGSH + 9% TMF, the TMF route has slightly higher return and sharp ratio, but obviously this wasn't a rigorous attempt to understand performance in different market conditions
I think this comes down to your own personal decision and perspective. I'm not certain there's a right answer because this anomaly could be arbitraged.

My take is: I don't know if the anomaly will continue or not. But I do know TMF has higher fees for certain. I'm the kind of person who wouldn't be too bothered if I chose EDV and then TMF continued to be better due to the anomaly. But I'd be seriously upset if I chose TMF, the anomaly decreased or went away (or its borrowing costs went up, which they just did btw) and I simply paid higher fees the entire time for underperformance, in the hope of that outperformance purely from historical data.

You will come to your own conclusion as to what scenario would bother you most. The OTHER scenario is the one you're most likely to stick to.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by schismal » Thu Feb 06, 2020 7:00 am

For those still concerned, AUM is back over $40M after the institutional pullout a few weeks ago.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by nisiprius » Thu Feb 06, 2020 9:12 am

schismal wrote:
Thu Feb 06, 2020 7:00 am
For those still concerned, AUM is back over $40M after the institutional pullout a few weeks ago.
Please tell us more about that "institutional pullout."
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by columbia » Thu Feb 06, 2020 9:17 am

Someone bought those shares, of course.
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by schismal » Thu Feb 06, 2020 9:29 am

nisiprius wrote:
Thu Feb 06, 2020 9:12 am
schismal wrote:
Thu Feb 06, 2020 7:00 am
For those still concerned, AUM is back over $40M after the institutional pullout a few weeks ago.
Please tell us more about that "institutional pullout."
In early January, $15M left the fund over 1-2 days. I'd read somewhere that an institution had pulled some assets out at that time, but I can't find a reference now.

https://ycharts.com/companies/NTSX/tota ... management

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by guyinlaw » Thu Feb 06, 2020 11:55 am

This went down to close to 31M during start of January with large unload. Please seem to adding in IRAs in January, now back up above $40M AUM.

One person in this forum bought in with $400k in one day, filled well close to NAV.

Wisdomtree is very positive about this ETF...

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by crystalbank » Thu Feb 06, 2020 1:03 pm

I had more luck with placing a 'Market' order than a Limit order. A Limit order even close to asking price didn't get filled, so replaced with a market order and it filled right away very close to NAV, below my previous limit order price. It happened twice, so I'm thinking there's more to it than just market randomness.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by nullisland » Thu Feb 06, 2020 1:35 pm

crystalbank wrote:
Thu Feb 06, 2020 1:03 pm
I had more luck with placing a 'Market' order than a Limit order. A Limit order even close to asking price didn't get filled, so replaced with a market order and it filled right away very close to NAV, below my previous limit order price. It happened twice, so I'm thinking there's more to it than just market randomness.
Market orders and limit orders are handled differently. Payment for order flow frequently only applies to market orders, and market orders are also more likely to be filled internally by your broker. In both cases the broker has more of an opportunity to offer you price improvement. This means that retail customers can often get better prices with market orders than with limit orders.

Out of curiosity, was your limit price inside the spread?

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by core4portfolio » Thu Feb 06, 2020 1:48 pm

I did limit order with 5 cents less and it took a while to fill but it got filled
I placed 1000 shares in one lot.
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by crystalbank » Thu Feb 06, 2020 1:55 pm

nullisland wrote:
Thu Feb 06, 2020 1:35 pm
Out of curiosity, was your limit price inside the spread?
Yes it was. Good to know about the order flow.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by caklim00 » Thu Feb 06, 2020 2:33 pm

crystalbank wrote:
Thu Feb 06, 2020 1:03 pm
I had more luck with placing a 'Market' order than a Limit order. A Limit order even close to asking price didn't get filled, so replaced with a market order and it filled right away very close to NAV, below my previous limit order price. It happened twice, so I'm thinking there's more to it than just market randomness.
That is odd and goes against everythign that we are taught, but makes sense.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by nisiprius » Thu Feb 06, 2020 3:01 pm

caklim00, on the few occasions when I tried to use limit orders to buy an ETF, that happened to me every time. It was at Fidelity, the ETF I was trying to buy was an unremarkable one--iShares TIP--and I never succeeded in buying one with a limit order, even when I set my price all the way up to the displayed "Ask" (and Fidelity wouldn't allow me to set it higher). Every time I experienced frustration and wasted time monitoring the order, and ultimately ended up placing a market order. The ETF connoisseurs have not been able to tell me what I was doing wrong, but I decided from then on to ignore the advice about always using limit orders.

It was an odd lot. Maybe you can't buy odd lots successfully when you are competing with round lot buyers willing to pay close to the ask, because sellers secretly discriminate against odd lot buyers and demand a price higher than the published ask? (Shades of the bad old days of De Coppet & Doromus when odd lot stock purchases were automatically routed to a special broker that added 1/2 onto the market price...)
Last edited by nisiprius on Thu Feb 13, 2020 1:15 pm, edited 1 time in total.
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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by caklim00 » Thu Feb 06, 2020 7:49 pm

RE Market vs Limit orders...

This has me thinking now. When is it more appropriate to put in a market vs a limit order?

1) Something super liquid like VTI, probably doesn't matter
2) Something that has underlying holdings liquid but not much trading volume like NTSX, perhaps market order is better
3) Something that is semi-liquid that has similiar ETFs but underlying holdings a a little less liquid (ala VIOV, SLYV, IJS as an example). No clue on this one.
4) Something that has low volume but part of underlying holding are very liquid and some less so (I'm thinking about all the Vanguard Factor ETFs here).
5) Something that has low volume and holdings are less liquid. Avantis ETFs, ISCF, etc. here. I'm struggling with this one. I've had difficulties in the past buying Avantis and ISCF without paying for the spread if using limit orders.

Also, I wonder if the company matters, vanguard, ishares, etc?

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by jhfenton » Thu Feb 06, 2020 8:08 pm

caklim00 wrote:
Thu Feb 06, 2020 7:49 pm
RE Market vs Limit orders...

This has me thinking now. When is it more appropriate to put in a market vs a limit order?

1) Something super liquid like VTI, probably doesn't matter
2) Something that has underlying holdings liquid but not much trading volume like NTSX, perhaps market order is better
3) Something that is semi-liquid that has similiar ETFs but underlying holdings a a little less liquid (ala VIOV, SLYV, IJS as an example). No clue on this one.
4) Something that has low volume but part of underlying holding are very liquid and some less so (I'm thinking about all the Vanguard Factor ETFs here).
5) Something that has low volume and holdings are less liquid. Avantis ETFs, ISCF, etc. here. I'm struggling with this one. I've had difficulties in the past buying Avantis and ISCF without paying for the spread if using limit orders.

Also, I wonder if the company matters, vanguard, ishares, etc?
I most often place market orders now. I almost always place market orders for Vanguard ETFs at Vanguard, and I almost always get mid-spread execution, including for VSS/Vanguard FTSE All-world ex-US Small Cap and VFVA/Vanguard US Value Factor, both of which have modest spreads.

I sometimes/often try placing limit orders for EYLD/Cambria Emerging Shareholder Yield, which I own at both Vanguard and Fidelity (in my HSA). Occasionally, I get a hit on a mid-spread limit order (without the spread having moved), but I usually end up having to place a market order and settling for the ask less a tiny price improvement. EYLD definitely falls into that 5th category. It's essentially emerging markets small-mid value.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by caklim00 » Thu Feb 06, 2020 10:01 pm

jhfenton wrote:
Thu Feb 06, 2020 8:08 pm
caklim00 wrote:
Thu Feb 06, 2020 7:49 pm
RE Market vs Limit orders...

This has me thinking now. When is it more appropriate to put in a market vs a limit order?

1) Something super liquid like VTI, probably doesn't matter
2) Something that has underlying holdings liquid but not much trading volume like NTSX, perhaps market order is better
3) Something that is semi-liquid that has similiar ETFs but underlying holdings a a little less liquid (ala VIOV, SLYV, IJS as an example). No clue on this one.
4) Something that has low volume but part of underlying holding are very liquid and some less so (I'm thinking about all the Vanguard Factor ETFs here).
5) Something that has low volume and holdings are less liquid. Avantis ETFs, ISCF, etc. here. I'm struggling with this one. I've had difficulties in the past buying Avantis and ISCF without paying for the spread if using limit orders.

Also, I wonder if the company matters, vanguard, ishares, etc?
I most often place market orders now. I almost always place market orders for Vanguard ETFs at Vanguard, and I almost always get mid-spread execution, including for VSS/Vanguard FTSE All-world ex-US Small Cap and VFVA/Vanguard US Value Factor, both of which have modest spreads.

I sometimes/often try placing limit orders for EYLD/Cambria Emerging Shareholder Yield, which I own at both Vanguard and Fidelity (in my HSA). Occasionally, I get a hit on a mid-spread limit order (without the spread having moved), but I usually end up having to place a market order and settling for the ask less a tiny price improvement. EYLD definitely falls into that 5th category. It's essentially emerging markets small-mid value.
Thanks, I didn't even think about the other aspect, where the brokerage order is being executed. I seem to remember when I was putting in limit orders at Wellstrade and TDAM, when it was an identical order the Wellstrade would often get executed before TDAM. I recall Livesoft doing some similar tests years ago. Perhaps market orders on Vanguard ETFs through Vanguard is a better approach as you noted with the Value Factor fund.

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Re: WisdomTree 90/60 U.S. Balanced Fund [NTSX]

Post by rascott » Sat Feb 08, 2020 7:49 am

guyinlaw wrote:
Thu Feb 06, 2020 11:55 am
This went down to close to 31M during start of January with large unload. Please seem to adding in IRAs in January, now back up above $40M AUM.

One person in this forum bought in with $400k in one day, filled well close to NAV.

Wisdomtree is very positive about this ETF...
Wonder what % of this fund is owned by this board?

We've got one person alone that owns 1% of it..... and a bunch of others that have certainly bought decent amounts.

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