Replicating Capital-Efficient Funds

Unstacking returns

November 2025. Reading Time: 10 Minutes. Author: Nicolas Rabener.

SUMMARY

  • Capital-efficient funds use leverage to cover core portfolio allocations
  • The residual cash can be used for alternatives
  • These funds can be replicated with leveraged ETFs

INTRODUCTION

Every day, thousands of professional and retail investors discuss individual securities and funds on platforms such as X, StockTwits, and Reddit. While some sophisticated investors purchase data from these platforms to analyze and exploit investor behavior, asset managers rarely use such discussions as a basis for product launches.

A notable exception is WisdomTree’s U.S. Efficient Core Fund (NTSX), which originated from a discussion on X about offering $1.50 of exposure for every $1 invested. The fund launched in May 2021, and WisdomTree subsequently expanded its lineup of capital-efficient ETFs, offering leveraged portfolios with exposure to gold, emerging markets, and international equities. Similarly, Newfound Research, whose founder Correy Hoffstein participated in the original X discussion, introduced its suite of Return Stacked ETFs in 2023.

The core concept behind these ETFs is to provide leveraged exposure to traditional portfolios – such as a 60/40 equities/bonds allocation – through futures or swaps. This approach allows investors to cover their core allocation using less than 100% of their capital, freeing up remaining funds for other investments like alternatives.

But can investors achieve the same exposure using leveraged ETFs alone? Capital-efficient funds charge a median management fee of 0.70%, which is expensive. Let’s explore.

CAPITAL-EFFICIENT FUNDS

Cumulatively, capital-efficient funds manage only about $3 billion, with WisdomTree’s U.S. Efficient Core Fund (NTSX) holding a 40% market share. As the largest fund with the longest track record, NTSX will serve as the case study for this analysis.

NTSX was previously known as the WisdomTree 90/60 U.S. Balanced Fund, reflecting its structure of 90% exposure to U.S. large-cap equities and 60% exposure to U.S. Treasuries – effectively providing 1.5x exposure relative to a traditional 60/40 portfolio. When benchmarked against an unleveraged 60/40 portfolio, NTSX delivers higher returns, accompanied by increased volatility, as expected