This new suite, called Impact Quantitative Portfolios, is managed by Envestnet's portfolio consulting group Envestnet | PMC.
To meet the growing demand for impact investment products, Envestnet developed the new climate change, ESG, and gender lens investing portfolios in partnership with Sustainalytics and Veris Wealth Partners.
“These targeted portfolio solutions can empower advisors to demonstrate more value for clients who wish to align their investments with their personal interest in making a positive impact—a trend that has been increasing, particularly among Millennials and women,” Jim Lumberg, co-founder and executive vice president of Envestnet, said in a statement.
Each portfolio contains a subset of the companies in a major market index, and is designed to mimic the portfolio characteristics of the index as a whole.
Using ESG scores from Sustainalytics, PMC optimizes each portfolio toward high-impact stocks. PMC then utilizes a proprietary risk model to develop and enhance target portfolio characteristics, and reviews the portfolio to ensure the target characteristics have been met. The portfolios can be adjusted at the security and industry levels to accommodate each client's unique circumstances.
The Impact Quantitative Portfolios are managed using tax-smart techniques and capabilities to position the portfolios for potential "tax alpha" that can add up to 60 basis points of value annually, according to PMC’s research.
"The launch of these innovative products is a milestone event for impact investing," Diederik Timmer, executive vice president of institutional relations at Sustainalytics, said in a statement. "The Envestnet | PMC Impact QPs will help advisors fully optimize ESG investment strategies while offering long-term intrinsic value to their clients."
The Quantitative Portfolios hold fewer positions to minimize turnover, and rebalance only upon corporate actions or when positions' natural price movements violate tracking error constraints. To prevent overtrading, PMC weighs tax-loss harvesting opportunities—which occur when losses exceed the prescribed minimum threshold—against risk and trading costs. PMC also possesses the capability to manage portfolios according to client-specific complex tax situations.
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--- Read the October 24 top portfolio products roundup.