Breaking it Down
The recent COVID-19 pandemic has brought worldwide attention to an ever-present reality: medical advancement is key to humanity’s physical and economic well-being. The ‘Demand Vaccine’ portfolio is an investment solution designed to make a measurable impact by investing in worldwide medical advancement.
Invest in Medicine
Our ‘Demand Vaccine’ portfolio has exposure to companies in the biotechnology industry, with a higher weighting to companies with drugs that are about to be released. The biotechnology portion of our Vaccine Portfolios is equally weighted between two main funds: a broad biotechnology fund and a Medical Breakthroughs fund. The Medical Breakthroughs fund only includes small and mid-cap Biotechnology companies which have one or more drugs in Phase II or Phase III FDA clinical trials. This ensures that a plurality of your investments is going to companies who are tangibly contributing to medical advancement.
Invest Diversified The ‘Demand Vaccine’ portfolio is designed to be a comprehensive investment solution. So, although a large portion of funds are allocated to the vaccine industry, we ensure that your portfolio is diversified across many different areas of the market, reducing volatility in the event that the medical advancement investment universe loses value. (For more information on the importance of diversification, check out our full whitepaperhere).
Narrowing It Down
The modern investment world has an extremely wide range of options. Even within a medicine-focused portfolio, there are many funds to choose from. Making sure that your investments are globally diversified and properly aligned is of paramount importance at Demand Wealth. Based on the results of your risk tolerance questionnaire, the appropriate allocation from 10 models within the ‘Demand Vaccine’ portfolio will be recommended. For example, a conservative investor will have a portfolio containing mostly bonds and light exposure to stocks, such as the ‘Demand Vaccine’ 10/90 (10% Stocks/90% Bonds). The opposite end of the spectrum holds true for someone more aggressive, where a 70/30 or 80/20 allocation containing mostly stocks and only a few bonds is more appropriate. Low fees, solid managers, low tracking error and high sharpe ratios are also factored in.
Low Expense Ratios
As you know, past performance of an investment does not indicate future performance. There is significant uncertainty in the investment world, but through that uncertainty, there is one constant: fees. Every fund has an expense ratio: this is the fee that a manager collects for managing each fund and is expressed as a percentage of the money that you have invested. The average ETF expense ratio is currently around 0.44%. While this may seem negligible, if your nest egg grows to $100,000, you end up paying $440 a year.
That’s why we chose funds with lower expense ratios. On average, our Vaccine portfolios have an expense ratio of 0.21%, so less of your money is going to managers and more of it is staying invested.
Even though past performance can’t predict future returns, fund managers can serve as a clue to a fund’s quality. We sort through thousands of funds, and carefully select those with reputable managers.
Low Tracking Error
While Demand Wealth provides an actively managed overlay, most of the funds included in our portfolios are “Passive Funds”. Passive funds that follow an index, such as the S&P 500, generally have lower expense ratios and have historically outperformed actively managed funds. However, some passive funds track their underlying index more closely than others. The further away passive funds get from tracking the index, the more likely they are to deviate from that index. We account for this by selecting funds that historically have low tracking errors.
High Sharpe Ratio
Imagine you are deciding between two different funds: Fund A and Fund B. One has an expected return of 10%, while the other has an expected return of 7%. At first glance, Fund A would seem to be the much better option. However, if Fund A took on significantly more risk than Fund B, then Fund B could have a better risk-adjusted return. That’s why it’s so important to consider risk as well return when looking at investment options.
The Sharpe Ratio gives insight into this characteristic. An investment’s Sharpe Ratio helps quantify how much return you’re getting compared to the amount of risk that you’re taking. Our portfolios are managed to contain funds that have yielded solid returns while taking on less relative risk.
Portfolio Management Strategies
Your portfolio is continually being monitored by our team of financial professionals, and we are constantly looking for opportunities to optimize your portfolio via Tax Loss Harvesting and Rebalancing strategies.
Tax Loss Harvesting
If you have a taxable account with multiple holdings, chances are there will be some down positions in any given year, even if your total portfolio is net positive. Tax loss harvesting is the process of selling investments at losses, which can provide a tax deduction (for 2020 up to a -$3000/ year loss can be written off against your annual income).
Annually we will analyze the positions in your non-retirement accounts then sell the appropriate losses and repurchase them after the 31 day wash sale rule has been satisfied. During this interim period, those funds will be invested in a placeholder similar to the sold position, so your money stays comparably invested.
Portfolio rebalancing is a staple of effective investment management. Demand Wealth sets your portfolio to an optimal allocation of stocks, bonds and real estate. This allocation will change over time as market conditions and investment performance evolve. Rebalancing is the discipline of resetting your portfolio back to its original optimal allocation. For example, if a 50% stock/50% bond portfolio evolves to be 57% stocks/43% bonds after a period of time. Rebalancing involves selling enough stocks and buying enough bonds to reset your portfolio back to its appropriate 50%/50% allocation. Of course, as your financial situation changes, Demand Wealth works to ensure that your portfolio stays properly diversified, optimized and in sync with your financial goals.
The Demand Wealth rebalancing process is performed by our skilled team. Unlike many of the robo-strategies, which rebalance at a defined interval (e.g. +/-10%), a Demand Wealth portfolio manager rebalances when it makes optimal sense. We also incorporate macroeconomic factors which may evolve over years, rather than months, that current computing models simply aren’t able to perform.