Advanced Indexing is based on decades of time-tested academic research on the drivers of asset returns. The underlying research -- recognized with two Nobel Prizes (1990, 2013) -- demonstrated that a security’s return is determined by the set of risk factors that it is exposed to, rather than its standalone risk (e.g. as measured by its volatility). Thus, by optimizing the composition of the factors to which a portfolio of individual stocks is exposed, its expected return should be increased while leaving volatility unchanged. Using a multi-factor methodology, Advanced Indexing seeks to identify securities that are likely to have the highest expected returns, and overweights them relative to their allocation in the cap-weighted benchmark.
Unlike 95% of Smart Beta ETFs, which focus on single factor strategies, Advanced Indexing relies on multiple factors when selecting which securities to overweight. This ensures the portfolio remains highly diversified, and minimizes the chances of underperforming the cap-weighted index. Moreover, by embedding this approach within our stock-level tax loss harvesting service (Direct Indexing), clients can defer the taxation of the incremental gains relative to the cap-weighted index until portfolio liquidation. All this, at no incremental cost to our standard advisory fee.
For more details, see our Advanced Indexing White Paper
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