Smartleaf Asset Management (SAM) is an online registered investment advisor that leverages the technology of its parent company, Smartleaf, Inc., to create tax-efficient separately managed accounts that track stock indexes, a process sometimes known as “direct indexing.”
Proponents of exchange-traded funds (ETFs) have done a great job at making investors aware of the ease and low cost of index investing. Direct indexing improves on that. Unlike an ETF, our investors directly own shares of a representative sample of an index.
With direct indexing, investors also have a greater ability to customize their portfolios and can realize significant tax savings by employing sophisticated tax management strategies typically reserved for high net worth investors.
There are three main ways:
- Direct indexing lets investors take advantage of sophisticated tax management techniques not available to ETF investors (more on tax management)
- Because investors own equities directly, direct indexing allows for customization, e.g. socially responsible investing (more on customization)
- Portfolios with existing low-basis securities can be transitioned into a direct indexing portfolio, helping investors to manage the tax effects of transitions and potentially realize significant tax savings (more on transition)
Tax alpha is the reduction in tax burden achieved by tax managing a portfolio. Our research shows that sound tax management can generate tax alpha of approximately 1.5% per year.
Smartleaf has a number of strategies to increase investors’ tax savings. For example, because investors own securities directly, Smartleaf is able to harvest losses at the individual stock level and offset gains elsewhere. Our technology performs tax loss harvesting year round, identifying opportunities to maximize tax savings as they occur.
ETFs can only use realized losses to minimize the gains they distribute to shareholders, but they can’t pass through any leftover losses to shareholders.
See our tax management page for more details.
Many RIAs appreciate the benefits of index investing, but may worry about selling low basis stocks with unrealized gains.
Direct investing allows RIAs to incorporate these individual stocks into an overall low-cost, tax-efficient portfolio strategy without necessarily needing to liquidate all existing securities.
See our transitioning page for more details.
Investors may wish to put restrictions on how their money is invested. Some may want to exclude fossil fuels. Others may need to avoid the stocks of the industry where they work in order to diversify risk. ETFs do not allow for these personal preferences and requirements.
Direct indexing, on the other hand, is a flexible investment solution that easily allows investors to apply security, sector and socially responsible investing screens.
See our customization page for more details.
Our minimum investment is $50,000, well below most other separately managed account programs of this type, which range from $250,000 to $1 million.
Our current Core Portfolio products track the S&P 500®. Depending on their preferences, investors can directly own between 70 and 300 stocks. The larger the number of stocks, the more tax efficient it is and the better it tracks to the index. Other indexes are in progress. If you’re interested in a particular index, please get in touch with us.
Yes! Smartleaf’s algorithms alert us to rebalancing opportunities. Sometimes we rebalance when position sizes drift too far from their targets. Other times, there might be a tax loss harvesting opportunity and rebalancing will help us take advantage of it. In all cases, we weigh the benefit of the trade against its cost.
Smartleaf is not a fund manager. We are registered with the Securities and Exchange Commission as an internet-based investment advisor. We manage client portfolios in separately managed accounts. Separately managed accounts allow investors to directly own all the securities in the account.
Separately managed accounts are an alternative to mutual funds and ETFs.