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Rob Arnott
Rob Arnott

Fund News Advisors Can Use: Rob Arnott Brings Model Portfolios to Advisors

In this week’s fund news, Rob Arnott launches four model portfolios; Ritholtz’s clients reap the benefits of tax loss harvesting through direct indexing; and DFA celebrates its 40th anniversary.

Global investment management firm Research Affiliates, founded by Rob Arnott, announced this week it has launched model portfolios for advisors. The firm says it applies a systematic asset allocation process across liquid asset classes, using both ETFs and mutual funds.

The four new models range from “Conservative” to “All Equity” and, depending on the model, include a mix of stocks, bonds and diversifiers, which may include global REITs, commodities, emerging market bonds, U.S. high-yield bonds and U.S. TIPS.

“Our model portfolios use a robust, adaptive, and disciplined approach that is informed by decades of research and experience,” the firm said. “The resulting allocations offer a starting point for well-crafted strategic positioning in client portfolios.”

Ritholtz Sees the Benefits of Tax Loss Harvesting

Ritholtz Wealth Management currently has 15% of its client assets in direct indexing strategies, but co-founder, Chairman and CIO Barry Ritholtz said he expects that to grow to half client assets in the next five years. His firm was an early user of O’Shaughnessy Asset Management’s custom indexing platform, Canvas.

In a recent blog post, Ritholtz said the biggest benefit to his clients has been the tax loss harvesting that’s possible through direct indexing. While index funds and ETFs are legally prohibited from passing on tax losses to investors, individuals can harvest losses on individual securities via direct indexing.

“Mutual fund investors who wish to TLH (tax-loss harvest) have to treat the mutual fund for what it is—a single security, whose cost basis changes over time based on distributions. They don’t get to look inside the portfolio and say ‘sell XOM!’ to book the loss. They only get to treat the fund as a, well, fund,” Ritholtz writes.

“Direct Indexing grants access to ALL OF THE LOSERS, without requiring the owner to do anything with the winners. This is a massive advantage to anyone selling a concentrated position, because more of the capital gains tax obligation that sales create can be offset.

“In 2020, accessing losses turned out to be the single biggest driver of direct indexing for RWM clients who had either low-cost basis stock or concentrated equity positions to sell.”

His clients on the Canvas platform have experienced an average after-tax boost of 80 basis points on their portfolios since inception.

Coinbase’s Listing and the Increased Demand for Cryptos

Coinbase, the exchange for buying and selling cryptocurrencies, debuted its initial public offering on the Nasdaq this week, with an initial valuation of $85 billion. Bloomberg points to the listing as a signal that cryptocurrencies are becoming more mainstream in the world of investing. Bitcoin has rallied 120% since December.

Asset managers are recognizing investor demand, with many filing to launch the first bitcoin ETF in the U.S. Billionaire Mike Novogratz’s Galaxy Digital Holdings is the latest to apply for a bitcoin ETF.

DFA Celebrates 40 Years in Business

Dimensional Fund Advisors, the asset management firm that has traditionally sold its funds solely through financial advisors, celebrated its 40th anniversary this week by ringing the bell at the New York Stock Exchange.

DFA got into the exchange traded fund market late last year with three funds, and now it has about $1 billion under management in those strategies. The firm also recently announced plans to convert $26 billion worth of mutual funds into ETFs.

The asset manager was founded in 1981 by Executive Chairman David Booth, who was running the company out of a spare bedroom in his apartment in Brooklyn, N.Y., at the time.

To celebrate the milestone, DFA will host a “Dimensional Week” of events for employees of the company. Each employee will also receive a hardbound book on the firm’s legacy, and the firm will launch an internal podcast series featuring employees and their stories.

TAGS: Mutual Funds
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