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Portfolio > Portfolio Construction

Betterment Adds Smart Beta and Targeted Income Strategies

By Bernice Napach

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Betterment, the largest independent digital advisor, has added two new portfolio strategies to its investment offerings: a smart beta strategy from Goldman Sachs Asset Management (GSAM) and a target income strategy from BlackRock. Both additions were made at the behest of investors.

(Related: Bond ETFs: Hotter Than Ever)

“We have been hearing from customers that different portfolio strategies would be better fit for different goals,” Dan Egan, director of behavioral finance and investments at the firm, told ThinkAdvisor. 

“Betterment has an increasingly diverse customer base; they all want to put their money to work, but not necessarily in the same way,” said Betterement founder and CEO Jon Stein, in a statement announcing the new portfolio strategies.

(Related: Smart Beta Strategies More Popular Than Ever and Growing Rapidly: Survey)

The Goldman smart beta strategy is designed to deliver stronger risk-adjusted returns than traditional market-weighted index funds generate. “Clients are a bit uncomfortable with market-cap weighted systemic approach,” says Egan. Trademarked as ActiveBeta, the Goldman strategy is based on four drivers (factors) of performance: value, momentum, quality and low volatility.

(Related: Betterment Launches SRI Portfolio Strategy; Wealthfront Planning One)

It tends to have higher allocation to emerging markets and small-cap stocks in the U.S. and developed economies and includes REITs and high-yield bonds with longer duration. Its expense ratios range from 0.11% to 0.24%.

The BlackRock income strategy is designed for clients who are averse to stock market risk but want higher levels of income than cash can deliver, says Egan. The entire portfolio consists of U.S. bonds and dollar-denominated international bonds, and it prioritizes capital preservation while aiming to provide income. Its fees range between 0.21% and 0.38%, depending on the portfolio’s target income level.

Betterment also offers a core portfolio comprising low-cost stock and bond ETFs, with fees between 0.07% and 0.15%, and a socially responsible investing (SRI) portfolio. Consumers choose the risk level they’re comfortable with and Betterment decides the allocations.

Betterment manages more than $10 billion in assets for more than 270,000 customers.

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