Advisors looking to protect client portfolios against the ravages of inflation should consider strategies beyond Treasury Inflation Protection Securities (TIPS). For example, some model portfolios offer a unique blend of equity, fixed income and alternative assets that can bolster inflation protection.
WisdomTree offers a series of model portfolios with endowment-style strategies that can help advisors deploy alternative assets while mitigating risk.
“Endowment is a reference to including non-traditional assets in addition to stocks and bonds, similar to a strategy that many endowments employ. The strategies may use both WisdomTree and non-WisdomTree ETFs. It typically includes U.S. and international equity and fixed income funds, along with different types of alternative strategies,” according to WisdomTree.
There are some indications this model portfolio is a relevant consideration today.
“While the overall economic environment probably points to inflation remaining low, there are still pockets of inflation here and there. Supply-chain disruptions and plant closures following COVID-19 infections at processing plants have driven up prices for meat and other groceries,” according to Morningstar.
Model Portfolio Endowment Angles
WisdomTree’s endowment series of model portfolio includes five risk profiles, ranging from conservative to aggressive. The moderate sleeve allocates 15% of its weight to alternative assets via six exchange traded funds, each of which has its own inflation-fighting capabilities.
One of those holdings is the WisdomTree CBOE S&P 500 PutWrite Strategy Fund (NYSEArca: PUTW).
PUTW can help investors generate income by selling volatility through writing options. PUTW includes one- and three-month Treasury bills and sells or “writes” one-month, at-the-money, S&P 500 Index puts.
Options writing strategies not only reduce portfolio volatility, but deliver high yields than common stocks and Treasuries. Additionally, PUTW delivers a steadier stream of income, a relevant consideration for investors in a low-yield environment. Plus, the income offered by a fund like PUTW is likely to keep up with if not exceed inflation. That’s important today because…
“Moreover, the aggressive stimulus package may eventually lead to higher inflation. The government stimulus package has already totaled $2.2 trillion, and Congress will likely expand that amount in the coming months. At the same time, the Federal Reserve has been aggressively purchasing bonds and reducing interest rates. The government printing more money is basically a textbook cause of higher inflation because it decreases currency values,” according to Morningstar.
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