Rebuilding International Equity Exposure with a Smarter Core Allocation Strategy

In an era of shifting macroeconomic dynamics and persistent volatility, investors are rethinking traditional portfolio construction. The classic 60/40 equity-bond allocation, once a cornerstone of risk management, has shown its limitations in recent years, particularly as inflation and interest rates have surged. Meanwhile, pure equity allocations, while offering growth potential, lack the diversification needed to weather market corrections. Enter the WisdomTree International Efficient Core Fund (NTSI), a leveraged ETF that reimagines the 60/40 framework by combining international equities with a Treasury futures overlay. This structure not only enhances capital efficiency but also delivers superior risk-return profiles, making it a compelling alternative for global investors.

A New Blueprint for Core Allocations

NTSI’s design diverges sharply from conventional strategies. Rather than holding physical bonds, it overlays 60% notional exposure to U.S. Treasury futures on top of 90% international large-cap equities, effectively creating a leveraged 60/40 portfolio [2]. This approach frees up capital for further diversification or alpha generation while maintaining defensive positioning. By leveraging 1.5x exposure, NTSI amplifies equity upside without sacrificing bond-like risk mitigation [4]. In contrast, traditional 60/40 portfolios are capital-intensive and less flexible, often underperforming in low-yield environments where bonds offer minimal returns.

The fund’s performance underscores its efficacy. As of June 2025, NTSI delivered a yearly return of 11.48%, outpacing the 60/40 portfolio’s historical 10.88% annualized return over five years [3]. This edge is partly attributable to its Treasury overlay, which acts as a buffer during market stress. For instance, during the July–August 2024 market correction, NTSI’s defensive layer helped stabilize returns, whereas the 60/40 portfolio faltered [2].

Risk-Return Efficiency: NTSI vs. Traditional Portfolios

The risk-return dynamics of NTSI are particularly striking. Data from PicturePerfectPortfolios reveals that a leveraged 90/60 portfolio (NTSX, a U.S.-focused counterpart) achieved a 13.66% annualized return with 14.92% volatility, outperforming both the 60/40 (10.88% return, 10.33% volatility) and pure equity (10.27% return, 15.42% volatility) allocations [2]. While NTSI’s volatility is slightly higher than the 60/40, its Sharpe ratio matches the latter’s 0.64, far exceeding the pure equity portfolio’s 0.41 [4]. This suggests NTSI generates better returns per unit of risk, a critical metric in today’s uncertain markets.

Valuation metrics further bolster the case for NTSI. As of September 2025, its underlying international equities trade at a P/E of 18.86 and a P/B of 2.73, significantly lower than the U.S.-focused NTSX’s P/E of 28.72 and P/B of 5.73 [2]. These discounts reflect undervalued global markets, particularly in sectors like Indian discretionary and retail, where earnings growth expectations remain robust despite low valuations [1]. By tapping into these opportunities, NTSI offers investors a cost-effective way to access international growth while hedging downside risk.

The Treasury Overlay Advantage

NTSI’s Treasury futures overlay is a strategic differentiator. Unlike traditional bonds, which require capital allocation, Treasury futures provide synthetic exposure at a fraction of the cost. This allows investors to maintain equity upside while gaining defensive positioning during downturns [2]. For example, during the 2024 market correction, the overlay helped NTSI outperform the 60/40 portfolio by mitigating equity drawdowns [2]. Additionally, the structure avoids the complexity of managing separate bond holdings, streamlining portfolio construction for global investors.

Critics may argue that leveraged ETFs like NTSI face volatility decay due to daily rebalancing. However, in a low-interest-rate environment where nominal rates are expected to decline, the benefits of leverage—such as enhanced capital efficiency and diversification—often outweigh the drawbacks [1]. Moreover, NTSI’s performance since 2021, despite initial underperformance, has rebounded strongly in 2024–2025, reflecting the growing appeal of alternative strategies in a restructured macroeconomic landscape [2].

Conclusion: A Smarter Core for the Modern Investor

The WisdomTree International Efficient Core Fund represents a paradigm shift in global portfolio design. By blending international equities with a Treasury futures overlay and leveraging capital efficiently, NTSI delivers superior risk-return efficiency compared to traditional 60/40 and pure equity allocations. Its valuation advantages and defensive structure make it particularly well-suited for investors seeking to rebuild international equity exposure without sacrificing stability. As markets continue to evolve, NTSI offers a compelling blueprint for rethinking core allocations in a world where conventional strategies are no longer sufficient.

Source:
[1] Modified versions of HFEA with ITT and Futures / Lifecycle Investing with Modern Portfolio Theory, https://www.bogleheads.org/forum/viewtopic.php?start=3100&t=357281
[2] Capital Efficiency ETFs - Expanding Beyond Traditional..., https://www.daytrading.com/capital-efficiency-etfs
[3] NTSI ETF Analysis: Dividends, Returns AMEX:NTSI, https://www.tradingview.com/symbols/AMEX-NTSI/analysis/
[4] Does Leverage Enhance a 60-40 ETF?, https://pictureperfectportfolios.com/leveraged-60-40-portfolio-revew-does-leverage-enhance-a-60-40-etf/