Passive Investing and strategies that “buy the market” have become very popular as a lower cost alternative to Actively managed mutual funds. However, when you’re investing in the Market, you’re investing in everything – the good and the bad. You may not like what you find when you start looking into the companies under the hood.
So why not just screen out the bad? You can, but it comes with a cost. According to Traditional Modern Portfolio Theory (which leads to Passive Investing), a portfolio constructed from a smaller, screened universe will typically have inferior risk-adjusted returns. Alternatively, you can invest in Actively managed funds or Thematic portfolios but they can be more expensive and may not have clear connections to theory.
Enter Factor Investing. Introduced over 25 years ago, Factor Investing is the next evolution in Portfolio Theory where performance over the Market is linked to economic “Factors” such as behavioral biases and market structures. More importantly, it provides a framework to design portfolios that are selective in its holdings, consistent with economic theory and can be systematically implemented at lower costs than Actively managed funds.
Sustainable Investing + Factor Investing = A Perfect Fit
Whether you’re seeking Social Responsibility or Impact in your investing strategy, Factor Investing provides a way to meet or beat the Market with a portfolio that is in line with your values.
How it works
Powered by recap. The recap investing process has 2 components: a “Core” Portfolio that leverages Factor Investing technology to meet your Sustainable Investing Objectives, and a “Custom” Portfolio that tailors the strategy to your Financial Goals and Risk Preference. All portfolios meet our minimum Sustainability criteria.
The process can be described in 4 main steps:
- Select your Sustainable Investing (SI) Objective.
The SI objective will be used to screen the universe of investable companies. These companies will form the building blocks of the Core Portfolio.
For our first product release, you’ll be able to choose between the “Responsibility” objective, for companies that meet our minimum Sustainability criteria, and the “US SDG Impact” objective for companies that not only meet the minimum Sustainability criteria but also contribute to meeting the U.N. Sustainability Development Goal (SDG) objectives through their products and operations.
- Select your Investment Strategy.
By leveraging Factor Investing technology, we construct a portfolio that is designed to “Match” the market, exhibiting similar characteristics to a comparable broad market index, or is “Factor-Enhanced” for a factor-diversified portfolio.
The portfolio strategy allocates weights to individual companies based on the selected strategy and other investability and diversification considerations.
- Select your Overall Portfolio Strategy.
Based on the selected Core Portfolio, we provide several Custom Portfolio options that you can choose from to customize to your specific Financial Goals and Risk Preference.
The Custom Portfolio is constructed using asset class ETFs that meet our minimum Sustainability criteria.
- Automated Rebalancing and Monitoring.
We will automatically reinvest any interest, dividends and new deposits into your portfolio as the funds are available. Every month, the Core Portfolio is rebalanced to stay current with market conditions. The Core and Custom Portfolio allocations are also reviewed regularly.
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