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ESG Portfolio Construction

A Guide to ESG Portfolio Construction

In this article, the authors explore six quantitative environmental (E), social (S), and governance (G) strategies to provide insights into best practices for ESG portfolio construction. These strategies offer different approaches to the trade-off between desired ESG attributes and investment performance. They conclude that fully understanding the dynamics of these trade-offs will allow investors to select the strategy that best matches their ethical and financial views.
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  • Patrick Geddes The Opportunity to Learn about Opportunity Zones by Patrick Geddes At Aperio, we’ve been asked by many wealth advisors and family offices about our views on opportunity zones (OZs), a tax incentive that allows for deferral and even elimination of some capital gain for taxable investors. In our view, the best way to look at these structures requires incorporating three different angles...
  • Lisa Goldberg Will Investing in Gender Diversity Make You Rich? by Lisa Goldberg If you think that fairness and access to the broadest, deepest pool of talent are good reasons for a firm to promote diversity, you may feel better after aligning your money with your personal values. If you expect a diversity-tilted portfolio to outperform its benchmark...
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Fact Sheets
All Fact Sheets: Factor Tilts - 2019 Q4

Factor Tilts

Aperio implements factor strategies that are tax efficient, control risk, and minimize unintended bets.

Replicating and Creating Alpha-Seeking Strategies

Sophisticated investors no longer have to choose between passive and active strategies. For those who want more control over their risk exposure, Aperio’s Factor Tilts solutions replicate and create alpha-seeking strategies in separately managed accounts to provide the cost savings of indexing combined with tax efficiency.

Engineering Portfolios with Precise Risk Control

We construct a portfolio reflecting each client’s preferred trade-off between factor alpha and tax alpha. Clients can select from Aperio’s standard factor strategies or design custom factor tilts. We follow a disciplined yet flexible process that allows us to map the client’s investment strategy onto a multi-factor risk model that can include tilts toward factors, geographies, industries, or sectors. Aperio implements each client’s desired tilts with precise risk control, whether that be in terms of tracking error or total portfolio volatility.

Beta-1 strategies seek to outperform a benchmark by tilting toward factors with a moderate increase in tracking error (versus non-factor strategies). Lower-risk strategies seek to reduce total portfolio volatility while outperforming a benchmark on a risk-adjusted basis. They fit the description of 'forgoing some market upside in exchange for some downside protection.' The tracking error is higher than in beta-1 strategies.