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Active
Investment Advisors
Active Equity Index Strategies
Active Managed ETF Portfolios
Active Investment Advisors
Q: Who is Active Investment Advisors?
A: Active Investment Advisors is a division of IXIS Asset Management Advisors,
L.P. Located in Oakland, California, Active Investment Advisors is a leader in
providing index-based solutions within separately managed accounts. All of our
strategies feature the simplicity, diversification and style consistency of indexing
combined with the individual customization and active tax management available
only through separate accounts.
Q: Who is IXIS Asset Management Advisors, L.P.?
A: IXIS Asset Management Advisors, L.P. (IXIS) is a $500 billion global investment firm that ranks among the world’s
top 20 money managers, and is noted for its expertise in managing multi-discipline
and stand-alone separate account strategies. For more information on IXIS, please
click here.
Q: What are the advantages of Active Investment Advisors being a division
of IXIS?
A: The combination of Active and IXIS is the best of both worlds, combining the
innovation, flexibility, and responsiveness of a boutique with the stability,
infrastructure and resources of an industry-leading asset management group.
Q: What strategies does the company offer?
A: Active Investment Advisors offers its indexed-based solutions through its
Equity Index Strategies or through its Managed ETF Portfolios:
Active Equity Index Strategies
Active Managed ETF Portfolios
- Active Managed ETF Portfolio - Conservative
- Active Managed ETF Portfolio - Moderate
- Active Managed ETF Portfolio - Aggressive
- Active Managed ETF Portfolio - All-Equity
- Active Managed ETF Portfolio - Income - Conservative
- Active Managed ETF Portfolio - Income - Aggressive
Q: What is the difference between Active’s Equity Index Strategies and Active’s Managed ETF Portfolios?
A: Active’s Equity Index Strategies are portfolios of individual
stocks that seek to match the performance of their targeted indexes on a pretax
basis while aiming to outperform the index after-tax. Each Equity Index Strategy
is targeted to a single index, such as the S&P 500 or S&P Global Stock
Index, but Active constructs a portfolio using only a subset of the
securities in the selected index. These strategies allow customization to take
into account the investor’s specific needs and preferences, including the exclusion of certain sectors or groups of securities.
Active’s Managed ETF Portfolios are portfolios of exchange-traded funds (ETFs) only. These strategic, broadly diversified asset allocation portfolios target either a certain risk or income level. They can be used either alone as a complete solution or with other complementary asset classes.
Q: What distinguishes Active Investment Advisors from other investment firms?
A: Active, as a division of IXIS Asset Management Advisors, L.P., combines
the best of both worlds - the innovation, flexibility and high-touch of a boutique
money management firm combined with the resources of an industry-leading asset
management group. This includes IXIS' dedicated separately managed account trading
and operations group and a distribution network second to none. In addition,
there are other unique and important features that separate us from other investment
firms:
- Dedication - Active Investment Advisors was designed from the bottom
up to deliver innovative, personalized, tax-managed index-based solutions
to investors.
- Proprietary Technology - Unlike other tax-managed indexing firms using third-party optimizers, we have created our own, proprietary software for the creation and maintenance of fully customized, actively tax-managed index-based portfolios.
- Personalized Portfolios - Unlike most investment managers who use model portfolios where one size fits all, each Active strategy is truly unique and individual. We can personalize portfolios further by sector, industry, group or individual security.
- Transitions and Concentrated Positions - For those investors with concentrated, low-cost basis positions, we can create a personalized, flexible transition program that seeks to minimize tax cost and lower risk over time.
- After-Tax Performance - At Active, we focus on after-tax performance
and dedicate a great deal of resources to calculating after-tax portfolio and
benchmark performance. Innovation in this area is extended to our Managed ETF
Portfolios.
Q: What is the Active's account minimum?
A: Our minimum account size is $100,000 for our Active Equity Strategies
and $50,000 for our Active Managed ETF Portfolios.
Active Equity Index Strategies
Q:
How do Active’s Equity Index Strategies differ from other separately
managed accounts?
A: Unlike most separate account managers, Active Investment Advisors follows
an index-based approach that seeks to provide a pretax return similar to the
targeted index. In addition, Active Investment Advisors focuses on tax management
and customization at the individual account level – an area where most
actively managed separate accounts have fallen short.
All Active Investment Advisors strategies can be completely customized for each
investor. Active Investment Advisors can build around or transition existing
holdings or exclude designated sectors and securities for account-specific reasons.
Active Investment Advisors also employs active tax-management strategies, such
as tax-loss harvesting, with the goal of maximizing after-tax returns for each
individual investor.
Q. What is the "active" part in Active’s Equity
Index Strategies?
A: We put the active in active indexing with our active tax management and complete
portfolio personalization. While we seek to match the performance of the index
before tax, we seek to outperform after tax. We also can completely personalize
portfolios at the sector, group or individual security level.
Q. What is the investment approach used in the Active Equity
Index Strategies?
A: Active employs a proprietary stratified sampling approach that allows
us to build portfolios of stocks using only a fraction of the securities in the
index while providing ample opportunities for tax management.
Q: How do you actively manage taxes?
A: Tax-loss harvesting and other tax-management techniques can increase the after-tax
returns of taxable investors. When appropriate, Active’s products
use proactive tax-loss harvesting strategies, tax lot and HIFO accounting, gain-loss
matching, and deferring of capital gains.
Q: Can I use this product to help a client who has a concentrated, low cost basis stock position?
A: Diversifying around concentrated positions is one of our strategies’ most
effective, and most popular, uses. Active Investment Advisors also provides tax-managed
portfolio transitions that tax-efficiently "unwind" concentrated positions.
Active can
design a personalized program that takes into account the investor's outlook
on the stock, desire for tax minimization, and need for risk management.
Active Managed ETF Portfolios
Q: How did you come up with your allocations?
A: Our base allocations are inspired by the work of Dr. Burton Malkiel, the author
of A Random Walk Down Wall Street . Dr. Malkiel is also the Chair of
the Active Investment Advisors Investment Committee. The allocations are based
on the principles of modern portfolio theory.
Extensive simulations were done to ensure that the allocations conform to our
expected risk and return profiles.
Q: Will the allocations change as market conditions change? How often?
A: Model allocations will be reviewed on a quarterly basis. At that time, we
will look at the series of rolling five-year correlations to determine if there
have been changes to the underlying structure of the markets that would warrant
changes to the model allocations. Since correlations change constantly, we would
only change the models if there has been a significant change to the underlying
correlations.
Q: What tools are you using to develop your allocations?
A: We use a variety of tools, including Ibbotson's Investment Analysis Software
EnCorr Analyzer and Morningstar's Principia. We also use the ETF sponsor sites
such
as iShares and Vanguard for additional data and analysis.
Q: What time period are you using for correlations?
A: We use a variety of time periods to look at correlations. When running backtests
and simulations we use all the history available to us. For ongoing monitoring,
we use rolling five-year correlations.
Q: How did you choose the specific ETFs? Why those and not others?
A: The criteria used for the initial selection of the ETFs include:
- Underlying index characteristics/attributes
- Expense ratios
- Tracking error versus the underlying benchmark
- Return of capital
- Distribution rates and tax efficiency
- Liquidity
- Index vendor
- ETF vendor or sponsor
- ETF structure
These criteria are also monitored on an ongoing basis as part of our regular
Investment Committee charter. In addition to the primary ETFs, we also have chosen
alternative ETFs for use in loss harvesting strategies.
Q: Is there overlap among ETFs in the allocations?
A: Our ETF allocations are designed to minimize overlap among asset classes.
Given the nature of the indexes and ETFs, however, this is not always possible
or even desirable. For example, our initial equity allocations, by using the
iShares S&P Index family ETFs, have no overlap. Fixed-income allocations
have some overlap in that we use the Lehman Aggregate Bond ETF, which includes
exposure to Treasuries and corporate bonds. The addition of the Aggregate Bond
ETF, however, does allow exposure to other sectors of the fixed-income market
that we would otherwise not be able to obtain, such as agencies, mortgages, and
other asset-backed securities.
It should be noted that more overlap can occur once we start tax-loss harvesting
and begin using our alternative ETF choices. Substituting the Russell 1000 Value
for the S&P 500 Value may cause some overlap with the S&P 400 MidCap
Value. We will try to minimize this overlap by swapping back to the S&P 500
Value from the Russell 1000 Value as soon as practical.
Q: How do you loss harvest? What's the threshold?
A: Positions will be tax-loss harvested if the tax benefit of harvesting the
loss exceeds a threshold. We will tax-loss harvest on an individual sub-class
ETF position only, not in aggregate, i.e., equity. When a position is tax-loss
harvested, the entire position will be sold where possible.
Q: Will you compensate for coverage overlap if using different indexes?
A: Our alternative ETF selections are made to minimize coverage overlap among
indexes. This is unavoidable in some loss harvesting scenarios, however. In general,
we will not compensate for overlap in coverage since this should be temporary
in nature and the attempt to compensate for overlap may incur explicit turnover
and tax costs that exceed any implicit risk or return impact of the overlap.
Q: What are your rebalancing parameters and schedule?
A: Portfolios will be monitored on a regular basis for rebalances and/or loss
harvesting opportunities. Rebalancing is both threshold-based and calendar-based.
Annual rebalancing will occur at least 12 full months after the initial investment with the aim of reducing the realization of short-term gains.
Rebalances in between the annual rebalance will be threshold-based. Rebalancing will be triggered when a position equals or exceeds an absolute plus or minus 5% of its original model weighting (e.g. when a 15% position becomes 20%). Proceeds from the sale of an overweight position will be used to bring underweight positions back toward neutral on a pro rata basis in order of largest underweighted positions first.
Q: Will you rebalance at the same time as loss harvesting?
A: Yes. Loss harvesting and rebalancing are done simultaneously.
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