Frequently Asked Questions
- 1. Can I invest with Elm Partners?
For our US private fund, investors must be Qualified Purchasers, which generally means they need to have at least $5mm of investment assets (we can send you a copy of the full SEC definition). Our Separately Managed Accounts at a Top 3 US Brokerage are open to all US investors. For our private offshore fund, non-US investors from only certain jurisdictions are eligible to invest. Please contact us to discuss further.
- 2. Does Elm Partners provide investment management services?
Yes, we do. US investors can invest either in a private fund or in their own individual Separately Managed Account at a Top 3 US Brokerage. We can handle both taxable investments and tax advantaged accounts, such as IRAs. If you are not sure whether the fund or an SMA would be more appropriate for you, please click here for the relative benefits of each.
Non-US investors from certain jurisdictions can invest in our private off-shore fund. For all our products, we charge a 0.12% per annum management fee, which is inclusive of all operating expenses, and we charge no incentive or other fees.
- 3. What is the minimum investment size that Elm partners will accept to manage?
For our US private fund, the minimum investment is $2mm, for our Separately Managed Accounts at a Top 3 US Brokerage the minimum is $300k, and for our offshore private fund, the minimum is $1mm.
- 4. Why is there a minimum investment for a Separately Managed Account?
The primary reason for our $300k SMA minimum is for us to be able to give you a really efficient investment. Commissions of about $5 on some ETFs (while some are free) mean we have to be careful about taking on accounts where, over the course of 9 rebalancings per year, the commissions might add up to an annual cost comparable to our management fee of 0.12%.
- 5. I already own Index funds or Mutual funds, can I contribute them into an account managed by Elm?
You can contribute cash, securities, or both into an account managed by Elm. If you contribute securities, Elm will determine on a case-by-case basis which securities will be retained.
- 6. Can I have multiple accounts managed by Elm?
Yes, you can have multiple taxable accounts and multiple IRA accounts managed by Elm.
- 7. Where are investors’ assets held?
We hold assets with the following institutions for each of our products.
For US investors:
- Our private fund – Vanguard, Morgan Stanley and Northern Trust
- Separately Managed Accounts: at a Top 3 US Brokerage
For non-US investors:
- Our private fund – Morgan Stanley, Interactive Brokers and Northern Trust
- 8. What are the mechanics of Elm Partners’ asset allocation?
Each of our strategies follows our rules-based asset allocation methodology, an approach we call Active 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.
- 9. Where can I learn about Elm’s approach to investing?
Here are three links containing descriptions of our investment approach, in increasing order of detail:
How We Invest
Our Asset Allocation Methodology
Elm’s Strategy in the Journal of Portfolio Management
- 10. Does Elm Partners earn any other income from investors other than the 0.12% annual management fee?
No. We only charge the 12bp management fee. We do not charge an incentive fee, and our management fee is inclusive of operating costs, such as administration, audit and legal. There are no hidden fees.
- 11. What is the weighted average expense ratio of the vehicles used to build the portfolios?
The weighted average expense ratios change depending on the asset allocation. For our various products it has ranged from 0.12% to 0.19% so far. We carefully select the vehicles we use to build our portfolios, and cost is one of the factors that we think is important.
- 12. Why does Elm Partners charge such a low fee as compared to others?
First of all, we don’t think we charge a low fee, but rather a fair fee. Others charge substantially higher fees, at least partially because they have to pay for expensive experts to manage their clients investments in a discretionary manner. The structure of our product, being primarily systematic and rules-based, allows us to charge the fee we do.
- 13. Can Elm partners survive on its 0.12% per year management fee?
We can do more than survive with this fee structure; we can thrive. While we can be profitable with our current amount of assets under management, we have chosen to spend more than our revenue as an investment in a future in which we expect substantially more assets under management.
- 14. How much investor assets does Elm Partners manage?
As of June 15th, 2017, more than 175 investors trusted us with over $500mm of their savings.
- 15. Who is a typical investor in Elm Partners?
The vast majority of our investors are active or retired financial industry professionals, from 45 to 60 years of age, and who have accumulated substantial savings. Many of our investors have graduate degrees, and at least 7 of our investors have taught finance at the graduate level in such universities as UPenn, Stanford, NYU and Harvard.
- 16. How much has the manager invested with Elm Partners?
Elm Partners manages a substantial fraction (>80%) of the liquid, non-real estate assets of the manager. ‘Manager’ here refers to Victor Haghani and his immediate family.
- 17. Where is Elm Partners located (why Wyoming)?
Elm Partners was founded in Wilson, Wyoming (a suburb of Jackson Hole), where Victor and his family have a home. After a few years, it became clear that a second office was needed in London, where Victor now spends the majority of his time. The London office is also where Elm’s two other full time team members work. Elm Partners is regulated both by the SEC in the US and the FCA in the UK.
- 18. How much turnover does the strategy typically generate?
We expect the strategy to generate annual gross trades equal to approximately 50-100% of the account balance, but with a large degree of variability year to year.
Most of the trades are generated by our momentum overlay and reflect incremental increases and decreases in holdings – together with our tax-aware rebalancing algorithms, this results in a much lower potential tax impact than would be experienced by a typical equity fund with a comparable level of turnover.
- 19. Given the relatively high degree of turnover, how do you deliver returns in a tax efficient manner?
We’ve put a great deal of effort into making each taxable SMA as tax-efficient for a US investor as possible.
In our core SMA product for taxable investors we re-balance each investor’s portfolio every 40 days (i.e. 9 times per year), and our systematic rebalance algorithm attempts to optimize between minimizing realized short-term taxable gains, maximizing realized short-term taxable losses, keeping the portfolio within certain bounds of our target risk allocations, and minimizing transaction costs. We also try to minimize realized long-term capital gains, but we place significantly less emphasis on this relative to the focus we put on short-term gains. Because many of the dozen or so core risk markets we invest in are related, and several instruments are generally available per market, we can often achieve a much better tax result for our investors than if we just naively re-balanced each market without thinking about taxes.
By default, all taxable SMA investors benefit from automated tax-loss harvesting, and our system automatically works to prevent tax-adverse wash sales between groups of linked accounts. We also try to earn as much income as possible in the tax-preferred form of Qualified Dividends.
Please be aware that tax performance in a particular instance will strongly depend on the specific path of the market and the investor’s entry point (or points in the case of multiple investments).
- 20. Why not rebalance more frequently?
We feel that monthly rebalancing is consistent with the nature of our value and momentum metrics. Furthermore, rebalancing the portfolio monthly generates expected turnover of 100% per year, which we think is high but acceptable. As AUM grows, we intend to eventually implement more frequent, partial portfolio rebalancing that will smooth our exposure to momentum, while maintaining expected turnover roughly constant. For example, rebalancing one quarter of the portfolio four times a month would be one such option.