Innovative Technology Portfolio Disclosure

Betterment offers an Innovative Technology (“Innovation portfolio”) portfolio strategy for investors that want targeted exposure to high-growth and industry-disrupting companies with some risk, within a broad-market portfolio. The Innovation portfolio is built off of the same portfolio construction methodology as the Betterment Core portfolio (see the Core portfolio methodology for more details) and incorporates exposure to innovation ETFs, the SPDR® S&P Kensho New Economies Composite ETF (“KOMP”), AB Disruptors ETF (“FWD”), iShares Exponential Technologies ETF (“XT”), and Invesco NASDAQ 100 ETF (“QQQM”) (collectively, the “Innovation ETFs”). The Innovation ETFs invest in high-growth potential U.S. and global companies in various industries using existing and emerging technologies including, but not limited to, clean energy, semiconductors, robotics, automation, artificial intelligence, alternative finance, biotechnology, and other disruptive technologies. For taxable accounts, XT is used as a secondary fund for KOMP for the purposes of Tax Loss Harvesting+ (“TLH”), and QQQM is used as a secondary fund for the disruption fund, FWD. The remainder of the Innovation portfolio consists of similar exposures that make up Betterment’s Core portfolio.

The SPDR® S&P Kensho New Economies Composite ETF seeks to track the performance of a benchmark index, the S&P Kensho New Economies Composite Index, which selects companies for inclusion in the index based on screening company regulatory forms for key words and phrases in the appropriate context relevant to new economy sectors (e.g., screening for the key word “blockchain”). 

The AB Disruptors ETF is an actively managed fund which seeks to outperform the MSCI ACWI Growth Index over the long-term by investing in innovative market leaders poised to disrupt their respective industries. The ETF combines top-down thematic research with bottom-up fundamental equity analysis and a risk management process to construct a portfolio of global companies aligned with long-term secular growth trends.

The Innovation ETFs bear increased risk relative to other ETFs in the portfolio based on their equity holdings within industries whose valuation may be subject to optimistic expectations in the evolution of technology and future growth. In the event those expectations do not materialize, the prices of assets held in the ETFs can decline. 

The Innovation ETFs are less diversified than the comparable ETFs in Betterment’s Core portfolio because the Innovation ETFs concentrate investments in certain industries or groups of industries, or exclude certain securities that do not satisfy the high-growth potential criteria for inclusion. This increases the risk of loss due to adverse economic, business, or other developments that affect those industries or companies. Reduced diversification also can increase the volatility of the Innovation portfolio relative to Betterment’s Core portfolio.

The Innovation ETFs are also less liquid than other broad market ETFs, meaning it can be more difficult to buy and sell the Innovation ETFs without affecting their respective  prices, relative to other ETFs in the Innovation or Core portfolios. As a result, there can be increased trading costs to enter or exit positions in the Innovation portfolio. This also may result in wider discrepancies between the market prices of the Innovation ETFs and the prices of their underlying baskets of securities than for comparable ETFs they replace in Betterment’s Core portfolio, particularly during times of market stress.

Betterment’s Innovation portfolio does not include any exposure to the Innovation ETFs when the portfolio is allocated entirely to bonds (i.e. a 100% bond allocation), so an investor whose Innovation portfolio is allocated entirely to bonds will not have any exposure to the Innovation ETFs. Generally, as your portfolio allocation shifts to higher bond allocations, the percentage of your portfolio attributable to the Innovation ETFs decreases. Your portfolio incorporates non-innovation bond ETFs because innovation bond alternatives do not exist or lack sufficient liquidity. 

Investors in the Innovation portfolio will incur additional fund costs compared to investors in the Core portfolio because the Innovation ETFs in the Innovation portfolio have higher aggregate expense ratios than the broad-based funds used in the Core portfolio. The specific fees for each fund in the Innovation portfolio are listed in the funds’ prospectuses, which are available through the Holdings tab in your account.

Investors considering Betterment’s Innovation portfolio should understand how it impacts the operation of Betterment’s Tax Loss Harvesting+ (“TLH”) feature. Electing the Innovation portfolio for one or more goals in your account while simultaneously electing a different portfolio for other goals in your account may reduce opportunities for TLH to harvest losses. See Betterment’s TLH disclosure for further detail.

The Innovation portfolio is compatible with Betterment’s other automated portfolio features, such as dividend reinvestment, rebalancing, auto-adjust, and tax coordination. With respect to rebalancing, Investing portfolios require a portfolio minimum balance in order for a rebalancing transaction to occur (which can be the aggregate of balances in a tax-coordinated portfolio); see Betterment’s rebalancing disclosure and portfolio minimum disclosures for further details.