Beyond 60/40: Boosting Portfolio Efficiency
Capital efficiency is best understood as a portfolio design tool, not a free lunch. The articleโs core idea is that Treasury-futures overlays can preserve broad equity and bond exposure while freeing cash for other sleeves. That can improve diversification, but it also changes the risk profile: investors are no longer holding a plain-vanilla stock-and-bond mix, they are combining cash securities, derivatives and collateral management inside one framework.
The most important implementation question is not the headline allocation, but the underlying exposures. Notional exposure can exceed invested capital, so portfolio behaviour may diverge from what a simple 60/40 label suggests. That makes the structure more sensitive to rebalancing, margin needs, roll costs and tracking difference versus the intended benchmark mix. Futures-based exposure can also introduce basis risk, which matters when rates move quickly or when the shape of the yield curve changes.
For long-term investors, the benefit is organizational as much as strategic. A multi-asset model can bundle equities, Treasuries, traditional fixed income and alternatives into a disciplined allocation framework, but it still needs explicit governance. Investors should consider liquidity of each sleeve, how often exposures are reset, and whether the added alternatives are genuinely diversifying or simply increasing complexity. In that sense, the central question is not whether 60/40 is obsolete, but whether the portfolio can be rebalanced into a more durable mix of return drivers without losing clarity about cost and downside risk.
Key Takeaways
- Capital efficiency can help investors preserve core stock and bond exposure while creating capacity for alternative strategies.
- WisdomTree Efficient Core Models combine capital-efficient equity and fixed income exposure with traditional equities, fixed income and alternatives.
- The Moderate and Aggressive models use different allocations to address varying risk tolerances while maintaining meaningful exposure to alternatives.
For decades, the 60/40 portfolio has served as a foundational framework for investors, pairing equities for growth potential with fixed income for diversification and stability. But today, portfolio construction has become increasingly complex with higher yields, heightened inflation uncertainty, and shifting correlations between stocks and bonds.
As investors look to broaden their sources of return and diversification, one of the challenges is preserving core equity and fixed income exposure while creating room for alternative strategies.
This is the idea behind capital efficiency. Rather than viewing a portfolio as a fixed amount of capital that must be divided among stocks, bonds and alternatives, capital efficient strategies allow investors to think differently about how that capital is deployed.
The goal isnโt necessarily to move beyond the core. It is to make the core work harder.
WisdomTree Efficient Core Models build on this concept by combining capital efficient equity and fixed income exposure with traditional equity, fixed income and alternative strategies. The result is a multi-asset portfolio designed to provide diversified sources of return while maintaining a core allocation of stocks and bonds.
From a 60/40 Portfolio to a More Diversified Portfolio
Consider a hypothetical investor who wants a traditional 60/40 portfolio but also wants a 20% allocation to alternative strategies.
A conventional approach would require a reduction in the allocation to stocks and bonds:
50% Equity + 30% Fixed Income + 20% Alternatives
The investor has added alternatives but at the expense of the traditional portfolioโs core allocation.
A capital efficient approach provides another option. By using equities and overlays of Treasury futures to maintain core stock and bond exposure, investors can create additional capacity that can be used to expand the investment opportunity set.
60% Equity + 40% Fixed Income + 20% Alternatives
This is the role capital efficiency plays within the Original Postortfolio-solutions/model-portfolios?familyName=Efficient+Core+Model+Portfolios" target="_blank" rel="noopener noreferrer">WisdomTree Efficient Core Model Portfolios.
Capital Efficiency is the Starting Point, Not the Destination
The WisdomTree U.S. Efficient Core Fund (NTSX) illustrates this concept.
NTSX seeks to provide exposure to U.S. large-cap equities while using Treasury futures to obtain additional fixed income exposure. Approximately 90% of the portfolio is allocated to equities, with approximately 60% notional exposure to Treasury futures and the remaining 10% of capital invested as collateral.
The result is approximately 150% notional exposure to 60/40 from 100% of invested capital.
To diversify outside the U.S., we apply this concept to international developed and emerging markets through WisdomTree International Efficient Core Fund (NTSI) and WisdomTree Emerging Markets Efficient Core Fund (NTSE).
Two Models, Many Ways to Implement the Approach
The WisdomTree Efficient Core Moderate Model Portfolio and the WisdomTree Efficient Core Aggressive Model Portfolio provide different starting points for investors with different risk tolerances.
The Moderate Model is designed around a 60/40 risk profile placing greater emphasis on capital-efficient core exposure and maintains a meaningful allocation to alternatives and fixed income.
The Aggressive model is designed around an 80/20 risk profile and has greater allocation to traditional equities and less traditional fixed income exposure, while maintaining a meaningful alternatives allocation.
Building Portfolios Around the Core
Efficient Core models employ capital efficiency as a tool to actively construct and optimize portfolios. The models are built using four structural components:
Model portfolio allocations as of 8/31/26.
- Capital Efficient Core is the foundation of both portfolios providing broad equity and Treasury exposure with less invested capital using strategies such as NTSX, NTSI and NTSE.
- The models also complement the beta exposure with traditional equity strategies. This allows the portfolios to tilt broad market exposure with more differentiated equity characteristics or factor exposures.
- Fixed Income retains an important portfolio role even though Treasury futures are part of the Efficient Core allocation. We complement Treasuries with dedicated exposures to mortgages and high yield.
- Capital efficiency becomes particularly interesting when it comes to alternatives. A meaningful portion of the portfolio is allocated to strategies designed to provide sources of return and diversification beyond traditional stocks and bonds. These include managed futures, gold, anti-beta and other alternative approaches.
The objective isnโt to identify one asset class that will outperform. It is to build a portfolio where different return drivers can potentially contribute during different market environments.
WisdomTree Efficient Core Model Portfolios Notional Exposure
The capital efficiency of the models becomes particularly apparent when looking at notional exposure, i.e. the economic exposure a portfolio has to each asset class, rather than simply the amount of capital allocated to each holding. Because the Efficient Core ETFs use Treasury futures to supplement their underlying equity exposure, a portion of the portfolioโs capital can generate exposure greater than the amount invested.
Conclusion
The traditional 60/40 portfolio remains a useful starting point for thinking about portfolio construction. Today, investors have access to a much broader range of strategies than they did when the framework first became popular. The challenge is not simply finding additional investments. It is finding a way to incorporate them without unnecessarily sacrificing the core exposures that investors still require.
Capital efficiency provides one potential solution and Efficient Core Model Portfolios take the concept one step further by using that capital efficiency as part of a broader multi-asset portfolio construction framework.
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