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A Guide to PMC Quantitative Portfolios

What are Quantitative Portfolios?

Quantitative Portfolios, or QPs, are separately managed accounts (SMAs) that are designed to passively track an underlying index. QPs are concentrated, in that they hold only a subset of the index’s constituents. For example, a concentrated portfolio tracking the Russell 1000 Index might consist of only 100 of the stocks in the index. The concentration allows for reduced minimum investment amounts, which can be as low as $60,000. The objective is to generate only enough portfolio turnover to stay within the desired tracking error allowance.

Key Attributes

The passively managed SMA structure of QPs enables them to provide four primary features:

  • Cost-efficient beta exposure
  • Potential “tax-management alpha”
  • Ability to customize the portfolio
  • Exclusive sourcing through independent advisors

These features can enable an advisor to demonstrate added value independent of investment performance, reduce the impact of tax liabilities for clients, potentially enhance after-tax performance, and allow for customized portfolio holdings and tax management.

QPs are available in several formats, including a UMA sleeve and three SMA versions: Beta, Tax-Optimized, and Custom Tax-Optimized (used primarily in tax-transitions situations). Each of these will be discussed later.

The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results.

Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet | PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.

Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange-Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index.

BNY Mellon, BNY Mellon Classic Developed Markets Index, BNY Mellon Classic Emerging Markets Index, BNY Mellon Latin America 35 ADR Index, BNY Mellon BRIC Select ADR Index, and BNY Mellon China Select ADR Index are service marks of The Bank of New York Mellon. These and other associated trademarks and/or service marks have been licensed for use by Envestnet Asset Management, Inc. for use with certain Envestnet Asset Management, Inc. products (“Envestnet Products”). BNY Mellon provides no advice nor recommendations regarding products based on any index licensed by BNY Mellon, including the Envestnet Products and none of the Envestnet Products are sponsored, endorsed, sold or promoted by BNY Mellon, or its respective affiliates, or third party licensors, and BNY Mellon makes no representation, warranty, or condition regarding the advisability of buying, selling, or holding units in the Envestnet Products.

Neither Envestnet, Envestnet | PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.

The information, analysis, guidance and opinions expressed herein are for general and educational purposes only and are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation. Envestnet makes no representation regarding the accuracy or completeness of the information provided. Information obtained from third party resources are believed to be reliable but not guaranteed. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Past performance is not indicative of future results.

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© 2013 Envestnet. All rights reserved. PMC-WP-QP-0813

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Brandon Thomas
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