Each of our strategies follows our rules-based asset allocation methodology, an approach we call Dynamic Index Investing®. Please click here for a note that describes in detail the three main components of this approach: the construction of the Baseline portfolio and the value and momentum overlays to that Baseline portfolio which make the portfolio responsive to changing market conditions.

For an asset class to be included in our Baseline portfolio it needs to be:

• Big and producing undiversifiable risk
• Investible via low cost and liquid vehicles
• Likely to carry a risk premium which ideally should be observable prospectively
• Accessible without requiring specialized selection skill

Asset classes that meet these criteria for our SMA portfolios are public market equities, public market real estate vehicles and government and corporate bonds. Among the many investments that don’t meet these criteria are hedge funds, private equity, venture capital investments, bank loans, volatility indexes, convertible bonds, soft commodities, fine art and other collectibles, and cryptocurrencies. We also do not invest in individual equities.

Our policy is that we do not hedge the FX exposure. For example, when we buy Japanese equities through index funds or ETFs, we hold them without any associated short positions in the Yen/$ exchange rate. So, if the price of Japanese equities in Yen stays constant, but the Yen weakens against the dollar, then Japanese equities will reduce the return of our fund, which we report in dollars. We made this decision for the following reasons:

1. Simplicity: we invest in the equity markets of over 60 countries with most of them having their own local currencies. Not all of them have liquid and open FX markets. Furthermore, certain FX markets won’t be well described by Elm’s value and momentum framework, making us cautious in introducing this extra complexity into our approach.
2. FX hedging is not clearly risk reducing for countries whose stock markets tend to go down when their currencies strengthen (e.g. those with significant international trade).
3. If investors consider themselves global citizens, as many of our investors do, and choose to measure the value of their investments in a global currency unit (albeit with a home bias), FX hedging can also increase risk.
4. Negative correlation reduces returns: An FX hedge needs to be adjusted so that it stays in line with the value of the equity market it is hedging. If an equity market tends to go up when its currency weakens (and vice versa), then each rebalancing adjustment will be done at an expected loss to the hedger, as it will be necessary to go short more of the currency when it has weakened and to buy it back when it has appreciated, resulting in a significant drag on returns. Of course, the associated transaction costs are a further drag on returns as well.
5. It is very disturbing that a FX-hedged equity investment can lose more than 100% of its value – sounds too much like leverage for us.

For US investors, our Separately Managed Accounts have a $1mm minimum, assessed at the family level. For our private Cayman-domiciled fund, Non-US investors from certain jurisdictions are eligible to invest with a $1mm minimum.

In both strategies, we offer minimum waivers on a case-by-case basis. Please contact us to discuss further.

The primary reason for our $1,000,000 SMA minimum is for us to be able to keep your costs low, in terms of us being able to deliver our services for our annual fee of 0.12% per year.

We are happy to consider accepting ETFs and Index funds you already own into Elm’s investment program for your Separately Managed Account. If the instruments are part of Elm’s current program or can reasonably be mapped into Elm’s program, we will typically accept them. For taxable accounts, on a case-by-case basis, we will also normally help you evaluate the costs and benefits of holding the legacy instrument versus switching to a lower-cost or better-structured similar instrument (if available). Once these assets are accepted into your account, we will routinely evaluate whether to continue to hold them based on all our usual criteria, including but not limited to Elm’s target asset allocation, transactions costs, expenses and tax considerations (for taxable accounts).

We hold assets with the following institutions for each of our products:

For US investors:
• Separately Managed Accounts at Fidelity or Schwab

For non-US investors:
• Our private fund – JP Morgan, Interactive Brokers and Fidelity

Many advisors charge higher, “fat” fees for smaller accounts, and the “right” fee for their largest accounts. At Elm, we simply don’t do that. We view 12bp as the absolute minimum marginal rate we need to charge, and we give that to all clients regardless of their size. We don’t know of any other advisors whose “top-tier” rate is below 12bp, and we have never charged a client less (not including Elm staff and families).

Getting started with Elm is intended to be as painfree as possible.

For US Separately Managed Account clients:

• Using our Online Onboarding, prospective investors can either add Elm to an existing account at Fidelity or Schwab or use our portal to open a new account
• Once your account is open, we’ll work with you to establish your portfolio baseline and dynamic scaling
• Following account funding, the portfolio will be invested during our next weekly rebalance.

For non-US investors in our offshore fund:

• Please contact us to receive the fund’s Private Placement Memorandum and Subscription documents