Socially Responsible Investing Portfolio Strategy Disclosure – I-wize Group


The I-wize socially responsible investing (“SRI”) portfolio is constructed considering environmental, social, and corporate governance criteria (“social responsibility factors”) when selecting investments, in addition to financial criteria. I-wize’s SRI portfolio differs from its standard, default portfolio (the “core portfolio”) by substituting exposure to the entire market of U.S. large capitalization companies with exposure to a subset of U.S. large capitalization companies that meet certain standards with respect to their social responsibility factors. I-wize’s SRI portfolio also contains exposure to emerging market stocks screened using social responsibility factors. For additional detail on the construction of I-wize’s SRI portfolio, see our white paper.
Investors considering investing in the I-wize SRI portfolio should be aware of the differences from the core portfolio and the SRI portfolio’s unique risks, as described below. The SRI portfolio invests a portion of its assets in certain ETFs that include companies that score highly on social responsibility factors and minimize exposure to companies that score poorly on those factors (“socially responsible ETFs”). The remainder of the SRI portfolio is comprised of broad market ETFs that do not currently use social responsibility screens (the “other ETFs”).
The other ETFs provide exposure to asset classes for which socially responsible ETFs satisfying I-wize’s investment selection criteria are currently unavailable, including but not limited to smaller U.S. companies, U.S. bonds, international developed market stocks, and international bonds. I-wize’s SRI portfolio therefore reduces, but does not eliminate, exposure to companies that investors interested in socially responsible investing may consider to be undesirable. I-wize may in the future add additional socially responsible ETFs to the SRI portfolio as more become available and may otherwise change the composition of the SRI portfolio in a variety of ways, including but not limited to altering the socially responsible ETFs in which the SRI portfolio invests or the allocation to such ETFs. Currently, I-wize’s SRI portfolio does not include socially responsible bond ETFs, so an investor whose portfolio is allocated entirely to bonds will not have exposure to socially responsible ETFs.
I-wize does not directly select companies to include in, or exclude from, the SRI portfolio. Rather, I-wize selects socially responsible ETFs to represent a portion of the SRI portfolio. The socially responsible ETFs included in the SRI portfolio track benchmarks of companies that meet certain environmental, social, or governance standards measured by securities research firms employed by the ETF sponsors (see, for example, the MSCI ESG Ratings description at The methodologies used to create the socially responsible benchmarks tracked by socially responsible ETFs may differ, and may change over time. For example, some benchmarks may exclude entirely companies in certain industries (e.g., tobacco, military weapons, civilian firearms, genetically modified organisms, nuclear power, alcohol, or adult entertainment) while others may exclude companies that have been the subject of recent environmental, social, or governance controversies.
Additionally, the criteria used to assess the social responsibility practices of the companies in benchmarks tracked by the socially responsible ETFs also may change over time, and may differ from criteria used by other ETF sponsors to evaluate companies’ social responsibility practices. As a result, the same company could score highly under one organization’s social responsible criteria but poorly under another organization’s criteria.
The selection criteria of the benchmarks typically tracked by the socially responsible ETFs focus on multiple metrics and could include companies that score highly on certain but not all of those dimensions. For example, an energy exploration company that scores well on its social and governance practices might be included in a socially responsible ETF even if it scores poorly on its environmental practices. Additional detail regarding the selection of the companies included in or excluded from the socially responsible ETFs in which the SRI portfolio invests can be found in the prospectuses drafted by the managers of those ETFs. Copies of those prospectuses are available in the portfolio tab of your account.
I-wize’s tax loss harvesting feature may be less effective when used with the SRI portfolio than with the core portfolio. This is because I-wize’s SRI portfolio does not currently include an ETF to gain additional exposure to U.S. large capitalization value stocks, which reduces opportunities for tax loss harvesting relative to I-wize’s core portfolio. In addition, the SRI portfolio currently invests in only two socially responsible ETFs that represent U.S. large capitalization stocks, and the third ETF in this asset class used for tax loss harvesting is not a socially responsible ETF. The secondary and tertiary ETFs used for tax loss harvesting in the emerging market stock asset class also are not socially responsible ETFs.
There are several risks that are different from an investment in the core portfolio that investors should consider when deciding whether they wish to elect I-wize’s SRI portfolio.
The socially responsible ETFs in I-wize’s SRI portfolio are less diversified than comparable broad market ETFs because they exclude certain companies and industries. In addition, the relative weightings of companies and sectors in the socially responsible ETFs may differ from the relative weighting of companies and sectors in comparable broad market ETFs. This means that I-wize’s SRI portfolio may be more or less volatile than the core portfolio, or other broad market indices.
The socially responsible ETFs in I-wize’s SRI portfolio are typically less liquid than ETFs that track comparable asset classes. This means that it is generally more difficult to buy and sell a socially responsible ETF without affecting its price, relative to a comparable broad market ETF. As a result, there may be increased trading costs to enter or exit positions in the socially responsible ETFs in which the SRI portfolio invests relative to comparable broad market ETFs. This also may result in wider discrepancies between the market price of the ETF and the price of its underlying basket of stocks than for comparable broad market ETFs, particularly during times of market stress.
Investors in I-wize’s SRI portfolio will incur additional fund costs compared to investors in I-wize’s core portfolio because the socially responsible ETFs in I-wize’s SRI portfolio have higher expense ratios than the expense ratios for comparable broad market ETFs. The specific fees for each ETF in the SRI portfolio are listed in the ETF’s prospectus, which are available on the portfolio tab in your account. Because these increased fees are associated with the stock allocation in I-wize’s SRI portfolio, a higher stock allocation in an SRI portfolio will result in higher fund costs relative to an investor with the same allocation using I-wize’s core portfolio.
Investments in socially responsible ETFs are subject to the risk that because social criteria exclude securities of certain issuers for non-financial reasons, investors may forego some market opportunities available to those who do not use these criteria.
  Are you on track for retirement?
Try our retirement calculator to see if you’re retirement-ready.
  Could your 401(k) be worth more?
Learn how rolling over an average 401(k) to a i-wize IRA could mean 60% lower fees.
  Want more retirement guidance?
Read the latest on investing for retirement on our Resource Center.