[This article appears in our July 2018 issue of ETF Report.]
Sara Stanich is the owner of The Stanich Group LLC, a fee-only registered investment advisor based in Brooklyn, New York. Her firm is a member of the XY Planning Network, which specializes in financial planning for Gen X and Gen Y investors. Here Stanich discusses how she uses ETFs and ESG products in portfolios.
Tell me a little bit about your practice and your clients.
I have a small practice. I’ve been in the business for close to 12 years; I started my RIA firm in 2016 in Brooklyn. A lot of my clients are people like myself—I seem to attract clients with young children. I have three young kids myself. That’s also a time in people’s lives when they want to get organized financially.
How do you generally approach investing?
I’ve tried a few things, and to be honest with you, I think some advisors overcomplicate things. I’m more focused on asset allocation than on individual stocks. I use ETFs. I used to use mutual funds years ago, but then I started looking at the costs and the performance and began switching things to ETFs over time.
When did you start using ETFs?
At least five years ago.
How do you use them? Do you look at things like smart beta or ESG?
I look at smart beta. With the smart-beta strategies, I hope to do a little bit better than the basic [cap-weighted strategies]. That being said, I try and keep things pretty simple. I have a few set portfolios and ESG versions of my portfolios as well.
My primary custodian is TD Ameritrade. And they have a large number of ETFs on their commission-free platform. So that’s one place I look; although I will say, there aren’t a lot of ESG options on that platform. I hope they add more over time.
Do you have a lot of demand for ESG approaches?
And have you seen an increase in that demand?
It’s increased. And I think the options have gotten better. I’ve been using ESG for about eight years. But some of the mutual funds at that time were really on the expensive side in terms of the internal costs. Those costs have gone down on the mutual fund side. But now there are also ETF options that are lower cost. They tend to be a little higher cost than the most plain-vanilla ETFs, but still lower cost than mutual funds, and still pretty reasonable.
Are there any ETF issuers you tend to use more than others?
My first screen, since I use TD Ameritrade, is looking at the commission-free options. They made a switch recently that means Vanguard is off that list.
But I do have a mix. I’ve got iShares and SPDRs and WisdomTree funds, and even [Nuveen’s] NuShares. Those are pretty much where my ETFs are.
Are you using the NuShares for their fixed-income products or their ESG ones?
It’s the ESG and U.S. aggregate ETFs.
With Vanguard no longer on TD Ameritrade’s commission-free platform, how have you been handling that change?
Basically, I’ll hold on. If it still fits the need in the portfolio, then I’ll keep it. But if I’m adding new money, then I’ll use something that’s no transaction fee. I’m comfortable doing that over time.
And if a client has a low-cost basis in a taxable account, we might not invest in my exact standard portfolio, because we might want to wait and do that gradually over time for tax reasons.
What are the biggest concerns for you and your clients right now?
Renewed volatility and political uncertainty. I’m getting a lot more questions about those things.
I’m very interested in macro trends and economic trends. I do feel it’s part of my role to know what’s going on. But if you have a long-term strategy, it really doesn’t change things day-to-day. Maybe it might lead to some small shifts. I was underweighting international for a long time with Brexit and everything, but then I decided to increase that a little bit.
Have there been any significant changes in your allocations, or is it more about holding clients’ hands?
Some clients may have decided they’re less tolerant of risk than they thought they were. So we can dial that back. We can make changes. I always make sure that clients that have short-term needs and shorter-term goals are invested pretty conservatively and they have a large cash cushion. But for accounts with long-term money—and a lot of my clients tend to be a little on the younger side, where they’re still going to be in the workforce for another 20-plus years—they should still be invested mostly in equities.
How many ETFs are in a typical portfolio?
Ten for my standard, and roughly four for ESG.
Is there any ETF that you think is particularly versatile or useful?
Everybody’s got to have some S&P 500. I’m using the SPDR Portfolio S&P 500 High Dividend ETF (SPYD) for the high dividend. But it’s pretty vanilla.
That being said, if someone does want something specific, there’s an ETF for anything that you can want. I had a client who didn’t trust financial companies, so we did ex-financials. Or someone who went on a trip to India and wants to invest just a little bit there, of course you can do that. That’s something about ETFs that I think is nice.
Are you looking at or getting queries about any of the newer ESG funds, like the veteran-friendly employers funds or the other employment equality funds aimed at women and the LGBT community?
I’ll say no. But people did ask me about gun-free funds. They have specifically asked, “Am I invested in gun manufacturers? How can I prevent that?” That’s really the only specific sort of social type of question that clients have come to me with.
There was definitely an uptick in the last six months or so. And it was people that I wouldn’t necessarily expect. There were parents of young kids, and some of my older, retired clients.
ESG sounds good, but it means different things to different people. And it never is perfect. If a client looks closely at every holding in a fund, I’m sure they could find something they don’t want, or don’t like, or didn’t expect. But I think clients feel at least it’s a step in the right direction.
A lot of people say, if you’re going to do ESG-type investing, you have to sacrifice returns. Do you think that’s the case?
I think that used to be the case. But it is less and less. And it’s partly because the costs have gone down, and partly because there are more options available. The funds themselves probably have more economies of scale.
I’ve done some analysis comparing my two portfolios, and they’re really neck-and-neck. Sometimes it would be, “Well, the ESG did better on the three-year, but the other one did better on the five-year.”