Modern finance and socially responsible investing appear incompatible. One is quantitative and unemotional, focused on maximizing return for a given level of risk. The other is the epitome of subjectivity in the realm of money management. But marrying the concept of the “optimal” portfolio with investing strategies that also pursue a greater good above and beyond making a buck isn’t beyond the pale.
Marrying the two seemingly mismatched strategies is Aperio Group LLC, which specializes in tax-efficient and socially responsible investing (SRI) indexing strategies. The nine-year-old firm excels in optimizing SRI portfolios a la Harry Markowitz’s portfolio theory. But while Markowitz’s original idea use expected return and volatility for calculating the optimal portfolio, Aperio revises the strategy by quantitifying each investor’s SRI values in relation to a chosen target benchmark. The goal is building a portfolio that maximizes an investor’s social preferences while minimizing tracking error against, say, the Russell 3000 or MSCI EAFE.
In the June issue of Wealth Manager, your editor profiled Aperio, which is based in Sausalito, CA. The firm claims to that its specialty strategies give investors more bang for their SRI buck. For the details, read on…