Exchange-traded funds (ETF-s), also known as index funds, track the performance of market indexes, such as the S&P 500. ETF-s allow you to invest into thousands of securities with a single transaction.
As ETF-s track indexes and leverage on technology, their costs are vastly lower than actively traded funds. Expense ratios of ETF-s used by Smartly range between 0.04%-0.50% per year.
As ETF-s are traded on exchanges, they are highly liquid, allowing an investor to withdraw funds in a matter of days. In addition, one can see at all times what exact securities are held by an ETF.
As Smartly’s portfolios are in their nature passive, then we create a broadly diversified pool of various ETF-s, which allow our algorithms to put together optimal portfolios.
As various ETF-s track the same index, we look at the expense ratio to reduce costs of ownership.
High liquidity in an instrument translates into lower costs through bid-ask spreads. We only select ETF-s with high trading volumes to optimize costs.
All ETF-s we use hold the underlying assets physically. This means there are no derivatives involved, which have resulted in extremely destructive results during global market downturns.
We take 11+ years of back-tested data and a moving 1-year window to look at a single business cycle. This is a core part of Smartly’s portfolios, as underlying correlations between asset classes may change.
Using the Black Litterman model we apply various criteria for the algorithm, such as limitations of how much can be allocated to a particular ETF, or to a particular asset class/region in general.
We apply a mean-variance optimization model to construct your portfolio. All our portfolios are risk-managed, meaning we pick 10 equally distributed risk levels from the frontier and the specific portfolios. This ensures you’re not overexposed to risk at turbulent times.
To make sure your portfolio is up to date with market movements, we rebalance your portfolio regularly (as often as once a month).