The Tough Standards Behind Our Funds

By Sylvia Kwan

“Passive” sounds negative, right? Passive-aggressive. The passive voice in writing. Passive victims of circumstance. But passive investments are anything but. They aim to match the performance of a market benchmark — rather than beat it. And they can be an effective investing strategy.

Low fees aren’t the only deciding factor we use when picking the funds we consider for your investment portfolio.

At Ellevest, we primarily invest in passive exchange-traded funds (ETFs). These are baskets of investments that resemble mutual funds, but trade on an exchange like a stock. They also tend to have low fees.

How Investing With Ellevest Works

We diligently manage your personalized investment portfolio using a range of diversified funds — always with your best interests in mind. You tell us a little bit about yourself and what you want to achieve. You also let us know whether you prefer our core portfolios, made up solely of passive ETFs, or our Ellevest Impact Portfolios, which are a mix of passive ETFs and some mutual funds designed for impact. Then we determine what mix of funds can best help you meet your goals.

The funds we use in your investment portfolio ultimately depend on your asset allocation -— that is, the mix of stock, bond, and alternative funds that we recommend for your goal and your preference for an Ellevest Impact Portfolio or a core portfolio.

So how do we decide which specific funds should be considered for your investment portfolio?

We Set Standards and Stick to Them

One reason why investors have warmed up to ETFs is that they’re relatively inexpensive. Many mutual funds have higher management fees: On average, they can range from 0.54% to 0.77%.* Our ETFs’ management fees, on the other hand, range from 0.04% to 0.44%. In some cases, however, certain asset classes or strategies may only be available as a mutual fund and not as an ETF.

Low fees aren’t the only deciding factor we use when picking the funds we consider for your portfolio. In fact, going with the “cheapest” option doesn’t necessarily mean that it will end up being cost-effective or smart for your portfolio. That’s why we consider a fund’s total costs, which can include more than management fees.

We look at things like the tracking error (how closely the the fund tracks its underlying benchmark), the bid/ask spread (the difference between the asking purchase price and asking selling price), and the average number of shares traded daily. These can affect total costs, too.

For our core portfolios, we seek funds that offer broad and diverse coverage of their asset class (i.e., stocks, bonds, or alternatives). This gives your portfolio greater diversification — which helps protect against an unpredictable future.

We also choose ETFs with a low tracking error, as well as ETFs that offer high liquidity. “Liquidity” means that the ETFs are easily bought and sold, which comes in handy when you’re withdrawing money or when we rebalance your portfolio. This also helps keep the total costs associated with holding the ETF low.

For our Ellevest Impact Portfolios, we’re choosing investments designed for financial returns and social impact by advancing women. Because some of these strategies are only available as mutual funds, we include both passive ETFs and mutual funds in our Ellevest Impact Portfolios. We carefully select the mix of funds that balance our preference for impact with the costs.

Finally, we look for funds that we believe will work well together in the context of your personalized portfolio. For example: Instead of selecting one fund for each asset class (for example, small-, mid-, and large-cap U.S. equities), we may pick one low-cost fund composed of several asset classes, and pair it with a smaller allocation of a single-asset fund (mid-cap, in this example). Doing this can offer the asset class exposure we’re looking for — but at a lower cost, with a higher level of tax efficiency.

What We Have

We have 26 low-cost, tax-efficient funds to choose from when building your goal-based investment portfolio.

Asset Classes Grid

Never Not Improving

The markets and the universe of available investments are always changing. But our standards for picking funds don’t. Our goal is always to keep costs low wherever possible, continuously improve our forecasts, and update our long-term market outlook when market behavior calls for it.

So, yes, our investments are mostly passive — but our portfolio management and investment selection isn’t. We know how important your goals are, and we want to do whatever we can to help you reach them.

Disclosures

*This excludes money market funds.

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.

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Sylvia Kwan

Sylvia is the Chief Investment Officer of Ellevest. She researches and oversees Ellevest portfolios, and develops the algorithms behind Ellevest’s investment recommendations.