Ellevest

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How We Created Ellevest Intentional Impact Portfolios

By Jennie Sanders and Rachel Chamberlain

Since we launched Ellevest Private Wealth Management in 2017, we’ve talked a lot with successful women about what it means to invest for impact. To them, investing for impact means:

  • A clear commitment to being part of positive change in the world

  • An understanding that every dollar we spend or invest has an impact, good or bad — even if we don’t know what that impact is right now

  • Wanting investments that align with our values, without having to give up the potential for competitive returns

  • Values vary person to person, but the women in our community most often want to make the world a better place for women

It’s no surprise that these themes keep popping up: 85% of people are interested in impact investing. But only 14% of financial advisors have spoken to them about it.

How We Created Ellevest Intentional Impact Portfolios

At Ellevest, we’ve been helping people invest for impact for a while. But we’ve wanted to do much, much more — and so do the women in our community. So we’ve been working hard to find new ways to do that. But the truth is that the opportunities out there were lagging behind this incredibly high level of interest.

We started by looking at mutual funds and ETFs. Of the ones we researched, most scored well on an outside gender equality index focused on women in the workplace. That’s a crucial thing to look at — but we didn’t think it was the full picture. We wanted more. We wanted to analyze more of the policies, products, and actions of publicly traded companies.

We also believed we could do more to fully customize the impact we (and our clients) wanted to make. If we could use individual equities, we wouldn’t be tied to the impact methodology of a mutual fund or ETF. We could work to develop our own strategy. And we realized that most of the opportunities we saw followed the same formula: They created a set of very focused criteria (like women in the workplace), using a single source of data. Then they applied those to a benchmark index of equities to decide what to keep and what to exclude.

We liked this approach because it was an efficient, low-cost way to provide broad access to investors at low minimums. It was a start. But when it came to truly making an impact — particularly for women — we were left with more questions than answers. What kinds of corporate actions and policies have the biggest effect on women’s lives? Are there really only a few things? Where is that single source of data coming from, and were we confident that it was comprehensive and rigorous?

The answers? Let’s say we didn’t love the answers. We realized we needed to create a solution for ourselves.

Introducing the Ellevest Intentional Impact Portfolios*

So today, after months of hard work, late nights, and plenty of Seamless, we have some pretty big news. We’re thrilled to officially introduce you to the Ellevest Intentional Impact Portfolios.

They let you choose to invest your money in companies that meet our criteria for doing the right things by women — and redirect your money away from companies with products, policies, and practices that may harm them.

When we developed our criteria, we looked at things like women and leadership and equal pay, of course. But we realized we also needed to go wider and deeper — because women worldwide face greater risk and bias in their everyday lives. When companies have harmful business practices around things like wage gaps, poor working conditions, and unsustainability — they affect all of us, but they affect women more.

These harmful business practices affect all of us, but they affect women more.

In contrast, when companies act positively for women, there is a positive ripple effect. Economies grow. Communities improve. The world gets more sustainable. When women thrive, everyone thrives.

Focused on sustainability for women

The Ellevest Intentional Impact Portfolios are separately managed equity accounts that customize your holdings down to the individual company level. The typical Intentional Impact Portfolio includes approximately 300 companies. We evaluate each of them based on the criteria we’ve developed — 50 of them, across 12 different focus areas. If a company fails any one of these criteria, we exclude it from the portfolio.

When we applied a robust set of data sources and available research on policies that have impacts on women’s lives, we were able to drill down into 12 focus areas that really matter.

We chose those 12 areas based on the known ways in which companies’ policies, practices, and products impact women. One (big) example: The UN has published research indicating that women are disproportionately affected by climate change. So the Ellevest Intentional Impact Portfolios exclude companies that don’t meet our criteria for climate impacts.

FYI: We also designed these investment portfolios to help you reach your financial goals using tax-efficient, modern, data-driven investing techniques — without changing your overall investment strategy. The portfolios are built to track closely to the appropriate market benchmark while being tax-conscious.

12 focus areas

As we suspected when we started, the policies and practices that disproportionately affect women go way beyond just a couple of things. We’re evaluating for:

  • Workplace Diversity. Companies with poor diversity practices that perpetuate existing inequalities, create negative community impacts, and face substantial reputational risk. Diversity and inclusion policies are particularly important to achieve gender equality in the workplace.

  • Firearms. Companies that produce and sell firearms.** Firearms play a significant role in deaths due to domestic violence.

  • Labor Relations. Companies with poor labor relations practices that fail to adequately engage with their workforce and face risks from low worker retention, labor unrest, and work stoppages. Good labor practices can help equalize the gender pay gap.

  • Human Rights and Community. Companies that operate in countries with controversial regimes or restrict access to basic services, and companies that operate private prisons or rely on forced labor are incentivized against humane labor reforms. Women are disproportionately affected by human rights crises around the world.

  • Product Quality and Safety. Companies with product safety concerns which may be at risk of harming consumers, incurring fines, or losing market confidence. Women are affected by safety concerns when products are not designed for them, and are vulnerable to data security issues in particular due to risks of harassment.

  • War. Companies that produce landmines, cluster bombs, or other controversial weapons have disproportionately negative impacts on civilian non-combatants. Companies that engage in military weapons contracting are incentivized to increase global conflict and face substantial reputational and regulatory risks. Armed conflict exacerbates gender inequalities.

  • Exploitative Products. Companies that rely on exploitative products and services like tobacco or predatory loans. Women are targeted for marketing of these products, and make up a disproportionate share of payday lending customers.

  • Working Conditions. Companies with poor working conditions that may put their workers in physical jeopardy, resulting in high risk of productivity loss, labor disputes, and regulatory penalties. Poor working conditions disproportionately affect women.

  • Water Source Impacts. Companies that produce water pollutants that may harm ecosystems and have negative health impacts on humans and animals. Women bear greater responsibility for water collection worldwide, leaving them more vulnerable to health risks.

  • Ethics and Fraud. Companies with poor accounting practices, internal controls, and ethics records. Women are more frequently impacted by wage theft and fraud.

  • Hazardous Waste. Companies that inadequately manage their toxic waste, e-waste, packaging material waste, and air pollution, potentially causing negative health and environmental impacts on the communities they serve. Along with greater exposure to overall health risks associated with hazardous waste, women also face pregnancy risks.

  • Greenhouse Gas Emissions. Companies that emit substantial volumes of greenhouse gases, either through combustion of fuels in company operations or through purchased electricity, as well as companies that are inefficient with their energy usage — thereby contributing to global warming and other ecosystem impacts. The UN has reported that climate change disproportionately affects women.

Intentional Investing

Using the data in our focus areas, we’re able to run a portfolio diagnostic on your existing individual equity investments to see which of your holdings meet our criteria, and which don’t, and give you the specific reasons for exclusion for each one.

In other words: We’ll show you the impact your money has today — and the impact it could have instead.

Ellevest Intentional Impact Portfolio Diagnostic

Impact and performance

We also designed this investment portfolio to help you reach your financial goals. Our investment philosophy has always been to focus on meeting our clients’ goals through diversified investments designed to achieve market returns. That’s no different here. As we worked to define the Ellevest Intentional Impact set of values and criteria, we also worked hard to minimize the tracking error to the market benchmark. In other words, we built it using an investments-first philosophy.

And on a quarterly basis, we’re able to clearly report out on several impact outcomes related to women in leadership and carbon emissions, among others. (This is something that 84% of investors say they want to see, by the way, but we saw very few examples of it in our research.)

Every investment you make has an impact — whether it’s one you intended or not. Do you know what’s in your portfolio today? To learn more about the Ellevest Intentional Impact Portfolios and see what impact your money is having right now, please connect with one of our financial advisors.

Click here to contact an Ellevest financial advisor in your area.


Disclosures

A firm reporting that more than 5% of their revenues are from firearm sales will be screened out. Note that not all companies report their revenues from gun sales, so we can’t guarantee that you will be fully divested from firearms.

© 2019 Ellevest, Inc. All Rights Reserved.

Ellevest Intentional Impact Portfolios are separately managed equity accounts that are sub-advised by Ethic, Inc., an SEC-registered investment advisor. As sub-advisor, Ethic constructs and manages portfolios of individual stock positions benchmarked to an underlying index and customized to specific values criteria. The sub-advisor seeks to track the performance of a designated equity benchmark (domestic and / or international) while outperforming on impact across key sustainability criteria as defined by Ellevest and / or the client.

Ellevest Intentional Impact Portfolios are expected to comprise around 300 US-listed equities (including ADRs as applicable) chosen through an outsourced multi-factor optimization software and sustainability data science developed by Ethic to minimize tracking error.

The sustainability criteria is based on risks in the following categories: Ethics and Fraud, Greenhouse Gas Emissions, Exploitative Products, Product Quality and Safety, Working Conditions, Labor Relations, Workplace Diversity, Waste, Water, Human Rights and Community, War, Firearms, Low Employee Representation (gender), Low Management Representation (gender), Low Board Representation (gender).

The primary benefit of Ellevest Intentional Impact Portfolio is that it provides broad market exposure with a goal of keeping average tracking error low over the long term, less than 1.50%, while divesting from companies that do not meet the strategy’s sustainability parameters. The tracking error may be meaningfully higher if the equity allocation is transitioned over time due to tax or other considerations.

Some of the key risks for the investing in Ellevest Intentional Impact Portfolio include:

Market Risk

As with all publicly traded securities, the SMA is exposed to market risk, the risk of losses arising from fluctuations in market prices caused by factors independent of a security’s particular underlying circumstances.

Active Risk

Although the SMA is constructed to minimize tracking error relative to its benchmark, there is no assurance that the strategy will generate market returns within the estimated tracking error. Because the SMA is designed to capture investment returns associated with gender diversity, and high environmental and governance standards, the SMA may exclude, overweight, or underweight individual companies and/or sectors of the market. As a result, the SMA will not fully participate in the market returns of a general investment strategy. The SMA may over or under perform a general market strategy.

Sub-Advisor Risk

The success of an account’s investment through sub-advisors is subject to a variety of risks, including those related to the quality of the management of the sub-advisor and the ability of such management to develop and maintain a successful business enterprise, and the ability of the sub-advisor to successfully execute, operate, and manage the intended strategy at or below the target tracking error.

Business Risk

The fund’s strategy relies on key personnel, their expertise, relationships and networks. A loss of one or more key personnel may adversely impact the strategy.

Ellevest Intentional Impact Portfolios give clients access to broad equity market exposure. The target tracking error for the Portfolios is under 1.50%. Reporting on Ellevest Intentional Impact Portfolios will be provided to clients no less than annually.

The minimum investment in Ellevest Intentional Impact Portfolio is $250,000. In addition to Ellevest’s advisory fee, the client will pay 0.30% of assets managed to the sub-advisor.

All opinions and views expressed by Ellevest are current as of the date of this writing, for informational purposes only, and do not constitute or imply an endorsement of any third party’s products or services.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.

Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.

Jennie Sanders and Rachel Chamberlain

Director of Investments Jennie Sanders and Head of Private Wealth Management Rachel Chamberlain worked closely together — and with the broader Ellevest team — to develop Ellevest Intentional Impact Portfolios.