Host:

Hi, everyone! Thank you for joining WisdomTree’s Q1 2026 Model Portfolio Outlook and Market Insights, where you’ll hear from Kevin Flanagan, our Head of Fixed Income Strategy, Joe Tenaglia, Director of Model Portfolios and Andrew Okrongly, Director of Model Portfolios.

Joe Tenaglia:

Awesome. Thank you, Irene. Thanks, everyone, for joining us today, and welcome to the WisdomTree Model Portfolio Investment Committee Outlook for the first quarter of 2026.

For anyone who’s new to this call, we want it to be quick, so we’ll spend about 15 minutes or so going through slides—our outlook, views, positioning, and any recent trades that we’ve made within our model portfolios. This will be recorded and available on our website, so you can bookmark it and come back to it at any time during the quarter for a refresher.

Without further ado, we’re going to go through some of the main themes that our investment committee is leaning into for the first quarter of 2026.

First, we maintain a pro-risk stance. There are always reasons to be pessimistic, but between the solid economic growth we’re seeing, really strong corporate earnings growth, modest investor positioning, some bearish consumer sentiment, and improving market breadth, there are a lot of reasons to believe this risk asset rally should continue into 2026. So we remain pro-risk within our asset allocation positioning.

Second, we’re overweight small caps with an emphasis on quality. For those of you who’ve been following us, you know we upgraded mid and small caps back in the fall, and we maintain that stance today. Small caps have done well, but what you’ve seen is a bit of junk outperformance, even above profitable small-cap performance. We think that’s going to shift in the coming months, so tilting toward higher-quality small-cap exposures is what we’re leaning into at this point in time.

Lastly, we’re focusing on India within emerging markets. India had some of the worst global equity performance across the globe last year, but we think the long-term story hasn’t changed at all. What’s changed is the valuation multiple it’s trading at. With a lot of the valuation concerns behind us, we think it’s ripe for a reversion trade going forward.

With that as the thematic backdrop, Kevin, why don’t you give us your read on the macro front?

Kevin Flanagan:

Thanks, Joe. I think your first mention on the macro front about the pro-growth stance may be one of the first times we’ve been able to say that in a number of years. The last few years always felt like we were asking whether a recession was coming or not.

As we came out of 2025, there was some definitive momentum. Third-quarter GDP was up over 4%, most forecasts for the fourth quarter are around 3%, and there’s an expectation that carries through into early 2026.

From a fiscal standpoint, there are some potential tailwinds coming out of the “one big, beautiful bill.” Energy prices are also important. If oil prices continue to come down, that’s effectively less of a tax on the consumer.

We’re recording this on January 9th, and the December jobs report wasn’t gangbusters, but it also wasn’t a disappointment. Job creation over the past couple of months has been around 50,000, and the unemployment rate was revised lower—from 4.6% in November to 4.4% by year-end.

That matters for the Fed’s dual mandate. With modest job growth and a declining unemployment rate, it argues against a rate cut in January. Markets remain data-dependent, but overall, this still looks like a solid, pro-growth, non-recession environment, with the Fed likely nearing the end of the rate-cut cycle. Joe, I’ll turn it back to you.

Joe Tenaglia:

Thanks, Kevin. That backdrop supports our overweight to equities. We’re overweight stocks versus bonds, prefer the U.S. over international markets, are neutral on value versus growth, and overweight mid and small caps.

While the equity risk premium appears lower than historical averages, we believe that interpretation misses changes in market composition and quality. Investor sentiment and fund flows continue to suggest there’s room for further upside in equities.

We upgraded small caps based on improving earnings, attractive valuations, and low positioning. We strongly favor profitable small caps over unprofitable names, as history shows that quality tends to outperform over time, particularly following junk rallies.

India was disappointing in 2025, but valuation premiums have fully unwound, leaving India at one of its most attractive relative valuation levels in years. None of the long-term structural themes have changed, which supports our optimism going forward.

I’ll turn it over to Andrew.

Andrew Okrongly:

Thanks, Joe. From a fixed income standpoint, our positioning applies across both multi-asset and standalone fixed income model portfolios.

While we maintain a pro-risk stance, compressed spreads have led us to gradually reduce corporate credit exposure and focus more on securitized credit, particularly agency mortgage-backed securities (MBS), which remain our most significant overweight.

Agency MBS offer relatively attractive spreads compared to other parts of the credit market, and the diversity of the coupon stack creates opportunities for active management. Agency MBS has been one of the strongest-performing components of the Bloomberg Aggregate Index over the past six and twelve months.

On alternatives, our capital-efficient ETF suite allows investors to gain alternative exposure without sacrificing core equity and bond allocations. This helps address one of the main barriers advisors face when allocating to alternatives.

We’re happy to provide additional materials and walk through how these strategies work for anyone interested.