The Investment Committee selects each ETF because, for example, it provides a low cost and high liquidity means of accessing its asset class in accordance with our Investment Selection Methodology. When selecting ETFs, the Committee considers the following key details: expense ratio, bid-ask spread, assets under management, number of holdings, exchange rate hedging, and capital gains implications. Read more about Betterment’s Investment Selection Methodology.
Unlike many actively managed mutual funds, the ETFs we use have definite mandates to passively track broad-market benchmark indices. A passive mandate explicitly restricts the fund administrator to the singular goal of replicating a benchmark rather than making active investment decisions like market timing, building concentration in a single-name, group of names, or themes in an effort to beat the fund’s underlying benchmark.
Adherence to this mandate helps to ensure the same level of investment diversification as the benchmark indices, and helps reduce idiosyncratic risk associated with active manager decisions.
This information has been provided by Betterment LLC, a registered investment advisor.
