Today's most valuable companies aren't the same bunch as they were 20 years ago. Each generation has new challengers and new categories (hello, Big Tech). And while we can't really predict the next class of top performers, innovation will probably come from a part of the economy using technology in new and exciting applications.
- artificial intelligence
- Alternative finance
- Clean Energy
- Manufacturing
- Biotechnology
This dynamic has led to the creation of an innovative technology portfolio.
What is an innovative technology portfolio?
The portfolio increases exposure to pioneering companies such as the technologies mentioned above. These innovations have the potential to re-create the way we work and play, and in the process shape the next generation of high-performance companies in the market.
Using a core portfolio as a foundation, innovative technology portfolios are built to generate long-term returns with a diversified, low-cost approach, but at high risk. It includes many of the same investments as Core, but also includes allocations to the SPDR S&P Kensho New Economies Composite ETF (ticker: KOMP) and AB Disruptors ETF (ticker: FWD). iShares Index Technology ETF (ticker: XT) and Invesco Nasdaq 100 ETF (ticker: QQQM) are used as secondary for the purposes of tax loss harvest + (“TLH”). For a more detailed look at the structure of your portfolio, skip to its methodology.
How are pioneering companies chosen?
ETFs, which Betterment can use to get to the theme of innovation, take a unique approach to security choices.
In Komp, the Kensho index it tracks uses a special branch of artificial intelligence called “natural language processing” to screen regulatory data and identify companies that will help drive the Fourth Industrial Revolution. After selecting companies in over 20 categories, each is combined into an overall index and weighted according to the risk and return profile.
Meanwhile, FWD is an aggressively managed ETF by Alliancebernstein, which also utilizes natural language processing, but incorporates both top-down thematic research and bottom-up basic equity research, creating a portfolio of global companies that are aligned with the themes of Cloud Infrastructure & AI funds, digital procedures, energy transition and industrial innovation.
Why can I choose this portfolio over Betterment's core portfolio?
We built an innovative technology portfolio to build a similar foundation to our then-equivalent equity/bond allocations in our core portfolio. However, outperforming or performance may be degraded depending on the return experience of the company KOMP and FWD invested in.
So, if today's emerging technologies are willing to drive tomorrow's return and take some additional risks to take that long-term view, this is a portfolio created with you in mind. After all, risk and early adoption tend to be closely linked.
Why improve and invest in innovation?
Innovative technology lies in our DNA. We may now be the largest independent digital finance advisor, but when we opened our shop in 2008, the “robo-advisor” category was barely present.
