17 Jul How My Robo Adviser™ Selects the ETFs in Your Portfolio
When you open an account and set up a goal with My Robo Adviser™, a portfolio allocation is recommended to you based upon the personal goal that you established.
Each portfolio, or model is comprised of up to 18 exchange-traded funds (ETFs). My Robo Adviser uses only ETFs because they offer investors one or more benefits such as access to specific asset classes, diversification, lower expense ratios, intraday liquidity, and tax efficiency when compared to most mutual funds.
How are the ETFs selected?
My Robo Adviser™ follows the Endowment Investment Philosophy™, which expands the investment portfolio beyond stocks and bonds to include alternative asset classes, seeking to provide improved risk-adjusted returns over a portfolio which contains solely stocks and bonds. Simply put, a 3-dimensional portfolio following the Endowment Investment Philosophy™ uses equities for offense (growth), fixed income for defense (stability/income), and alternatives, or risk managed asset classes, intended to provide a mix of both.
The underlying ETF holdings for most of our recommended portfolios at My Robo Adviser™ approximate the holdings in the Endowment Index™ calculated by Nasdaq OMX®. Using asset allocation data collected from over 800 college and university endowments, which collectively manage over $5 billion, the Endowment Index™ seeks to track the performance of the average U.S. endowment by using ETFs. ETF Model Solutions, LLC, adviser to My Robo Adviser™, is a creator of the Endowment Index™. For each of the asset classes or sub-asset classes in the Index, there is an ETF that represents that asset class. The same ETFs used in the Index are used to create most of the portfolios recommended at My Robo Adviser™.
When the recommended model has an Equity goal of 20% or greater, the portfolio will include 18 of the 19 ETF holdings in the Endowment Index™ (we have excluded one ETF in the Index because it involves more complicated tax reporting for investors). The equity component seeks to benefit from the better longer-term returns that have historically been provided by stocks, but correspondingly, that generally comes with more volatility. The more aggressive models seek to dampen the equity volatility by including alternatives and a small fixed income allocation. Model 65 (represented by the “65% Equity Goal” or “65% Stocks” in the portfolio allocation display is most representative of the Endowment Index™ and correspondingly has the highest allocation to alternatives. At Model 84, (or an Equity Goal of 84%) the amount of targeted Equities and Alternatives/Risk Managed is approximately Equal.
Some of the ETFs and the asset classes held in the Endowment Index™ our models include:
|Name of ETF (Symbol)||Asset Class||Sub-asset Class|
|Vanguard U.S. Stock Market||Equity||Domestic|
|Vanguard FTSE Developed Mkts||Equity||International-developed|
|Vanguard Total Intl Bond ETF||Fixed Income||International-developed|
|SPDR Barclays 1-3 Month T-bill ETF||Fixed Income||Short-term bond/liquidity|
|Vanguard REIT Index ETF||Alternatives||Real estate-domestic|
|iShares U.S. Oil & Gas Exploration & Production||Alternatives||Commodities- Oil & Gas|
|iShares MSCI Global Metals & Mining Producers||Alternatives||Commodities- Metals & Mining|
Do all portfolios contain holdings from the Endowment Index?
Not all of our recommended portfolios contain all the holdings of the Endowment Index™. For shorter-term goals (Models 0-19) such as a Safety Net, My Robo Adviser™ offers only two-dimensional portfolios containing stocks & bonds (mostly fixed income ETFs). There may be other instances, such as when a wash-sale restriction prevents buying an ETF back that was recently sold, or when tax loss harvesting is being implemented. Then, a substitute ETF that represents that asset class will be purchased.
If you have any questions about holdings in your account or one of our models, or perhaps have another question about our services, you can contact us directly at 920.785.6012 or email us at email@example.com. My Robo Adviser™ has partnered with Betterment for Advisors as our technology solution to provide our services to our clients. Betterment maintains a support line you can also call for help with navigation, linking your accounts or other site functionality. You can call the Betterment for Advisors support line at 800.400.1571.
Last updated, July 16, 2018
Disclosures: Content is for informational purposes only and is not intended as personalized financial planning or legal advice. Content is subject to change without notice. MyRoboAdviser.com provides investment recommendations based on a goals-based platform. Investments are not guaranteed, not bank insured, and may lose money. Investment Advisory Services provided to clients of My Robo Adviser™ by ETF Model Solutions, LLC, an SEC registered investment Adviser (registration does not imply any particular skill or training). Sub advisory services provided to clients of My Robo Adviser™ by Betterment, LLC, an SEC registered investment advisor. Brokerage services provided to clients of My Robo Adviser™ by Betterment Securities, an SEC registered broker-dealer and member FINRA/SIPC. Certain content on the Betterment, LLC website, including projected returns and tax-coordinated portfolios, may not apply to MyRoboAdviser.com’s investment recommendations. Clients must agree to provide and maintain accurate and current information with respect to their goals and financial circumstances. MyRoboAdviser.com does not provide financial planning or tax advice. Past performance is no guarantee of future results.