Value Tilt Portfolio Disclosure
Betterment offers a Value Tilt (“Value Tilt”) portfolio strategy for investors that want targeted exposure to U.S. value companies within a broad-market portfolio. By taking on risk with the targeted exposure, the portfolio has the potential to under- or outperform based on the return of U.S. value equities.
The Value Tilt portfolio is built off of the ETFs that make up Betterment’s Core portfolio but substitutes a portion of the Core portfolio allocation to U.S. equities with specific allocations to three asset classes representing large-, mid-, and small-capitalization U.S. value funds (the “value asset classes”). ETFs in the Value Tilt portfolio are organized into security groups, which may include primary, secondary, and/or IRA secondary tickers. The remainder of the Value Tilt portfolio is primarily comprised of the ETFs that make up Betterment’s Core portfolio. See the Core portfolio methodology and the Core portfolio disclosure for more details. Prior to Jan 2, 2024, the Value Tilt portfolio maintained the same performance track record as, and asset allocation of, the Core portfolio strategy.
The value asset classes seek to provide exposure to companies that may be considered undervalued in the market relative to their underlying fundamentals such as earnings. The value asset classes bear increased risk relative to other broad-market ETFs in the portfolio based on their concentration of equity holdings within industries who may be subject to optimistic expectations (i.e. providing value premium, consistent/stable cash flows, and outperforming in certain macroeconomic conditions that tend to be more favorable to value exposures). In the event those expectations do not materialize, the prices of assets held in the ETFs that comprise the value asset classes can decline.
The value asset classes are less diversified than comparable ETFs they replace in Betterment’s Core portfolio because the value asset classes concentrate investments in certain industries or groups of industries, or exclude certain securities that do not satisfy the value criteria for inclusion. This increases the risk of loss due to adverse economic, business, or other developments that affect those industries or companies. Reduced diversification also can increase the volatility of the Value Tilt portfolio relative to Betterment’s Core portfolio.
Clients should be aware that the taxable and tax-advantaged (e.g., IRA) versions of the Value Tilt portfolio may hold different ETFs within a security group. Betterment prioritizes assigning secondary tickers to the taxable version of the Value Tilt portfolio to maximize tax-loss harvesting opportunities. Certain security groups in the Value Tilt portfolio do not have secondary tickers assigned in the tax-advantaged version where no suitable secondary exists beyond the pair used in the taxable version. This may impact rebalancing in your account.
Betterment’s Value Tilt does not include any exposure to the value asset classes when the portfolio is allocated entirely to bonds (i.e. a 0% stocks allocation), so an investor whose invested portion of the Value Tilt portfolio is allocated entirely to bonds will not have any exposure to the value asset classes (which are contained with the equities allocation). Generally as your portfolio allocation shifts to higher bond allocations, the percentage of your portfolio attributable to the value asset classes decreases.
The Value Tilt portfolio also targets a small operational cash allocation in taxable accounts, health savings accounts, and individual retirement accounts (IRAs); when there are fees, withdrawals, or other portfolio management actions in a client's account, this cash will be used first, reducing the need to sell securities to cover smaller transactions.
Investors considering the Betterment Value Tilt portfolio should understand how it operates with Betterment’s automated portfolio management and tax management features.
With respect to portfolio management, Betterment’s Value Tilt portfolio is compatible with automatic dividend reinvestment, automatic rebalancing, and auto-adjust allocation features. Investing portfolios, including the Value Tilt portfolio, require a portfolio minimum balance in order for a rebalancing transaction to occur (which can be the aggregate of balances in a tax-coordinated portfolio); see Betterment’s portfolio minimum disclosures for further details. If your investing portfolio balance exceeds the required minimum, Betterment will perform automated rebalancing to correct drifts in allocations, aligning back to the target weights. If you have enabled auto-adjust, the Value Tilt portfolio will automatically modify your allocations towards more conservative levels as you approach your goal time horizon. Read more about Betterment’s auto-adjust feature.
With respect to tax management features, Betterment’s Value Tilt portfolio is compatible with Tax Loss Harvesting and Tax-Coordinated Portfolios. Betterment typically implements its tax loss harvesting feature by shifting allocations among three ETFs in each sub-asset class. Electing the Value Tilt portfolio for one or more goals in your account while simultaneously electing a different portfolio strategy for other goals in your account may reduce opportunities to harvest losses. For more information on Betterment’s tax features and advice, please refer to Betterment’s Tax Loss Harvesting Disclosure, Tax-Coordinated Portfolio Disclosure, and Rebalancing and Auto-Adjust Disclosure.