Creating thematic beta: Quality Manager

A consultant recommended a well-known institutional Quality Manager to a family office, but the client expressed concerns over cost and tax efficiency. Aperio created a custom portfolio strategy screened for quality factors, at lower cost and with active tax management. 

Challenge

Family office wanted to pursue a well-known institutional Quality strategy that their consultant had recommended. The family office was also focused on taxes because it had a large pending tax liability from the sale of a private business.

Aperio solution

Aperio worked with the consultant and client to create a custom quality strategy using beta factors, but at a low cost and with tax-loss harvesting. Aperio defined a custom strategy with the consultant and client using risk factors on high earnings yield, low volatility, low leverage, and low earnings variation to screen for quality companies. Aperio optimized the screened quality companies to track the S&P 500. Implementation added tax-loss harvesting capabilities to improve after-tax returns.

Impact

Family office chose to work with the investment consultant using Aperio’s custom quality strategy. Client’s custom quality strategy achieved desired factor screens with significantly lower fees, lower minimums and added tax alpha. The portfolio also achieved lower volatility than the Quality Manager alternative.