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What Is a Positive Tilt?

In investing, tilting is a process that “tilts” a fund or portfolio toward a specific investment strategy, sector or goal. A positive tilt usually refers to a portfolio weighted toward investments with positive ESG (environmental, social or governance) characteristics. 

Understanding positive tilt

Tilting is a decades-old concept that you may have already practiced. 

Essentially, tilting involves overweighting your portfolio according to a specific investment style, strategy or goal. Generally, the aim is not just to meet a benchmark or the broader market, but to exceed them. 

You may tilt by heavily investing in a particular company, sector or type of security. (Such as small-cap vs. large-cap; dividend or non-dividend-paying.) Some investors also rely on so-called “tilt funds” to get a head start.  

What is a tilt fund?

A tilt fund is a mutual fund or exchange-traded fund (ETF) that tilts for you. 

Tilt funds start with a set of core investments that often mimic a benchmark index. Then, the fund adds specific securities that weight the fund toward the fund’s strategy. The aim is to hopefully outperform the market and/or meet other specific goals. 

Tilt funds may be described as “enhanced funds” because these additions “enhance” the benchmark. Tilt funds may choose securities based on market cap, dividend size, industry or sector, P/E ratios or ESG status.  

What is a positive tilt?

A positive tilt is a strategy that involves weighting a fund or portfolio toward ESG principles. Environmental, social and governance (ESG) funds often aim to go green, improve labor rights and community ties and reduce corporate malpractice. 

Funds and portfolios with a positive tilt attempt to invest in companies with fewer environmental, social and/or governance violations. They may select based on industry, financial histories, regulatory entanglements or other ESG factors.  

For instance, a fund may heavily invest in clean energy while cutting out high-emission industries. Alternatively, it might eliminate holdings with a history of paying massive fines for labor rights and embezzlement violations. (Or it might do both simultaneously.) 

Ultimately, the goal of a positively tilted fund is trimming risk related to negative practices – and hopefully increasing rewards in the process. 

How does a positive tilt affect you?

Nowadays, many brokerages and investment firms offer funds with positive tilts (i.e., ESG funds). And though it’s relatively new, the strategy shows promise. Early results suggest that ESG investments may generate similar (or better) profits to traditional funds – potentially with less risk. 

Overall, companies that adhere to ESG guidelines are  less likely to engage in fraud, corporate malpractice or natural resource violations. As a result, they spend less money and employee hours on fines and course corrections. 

Still, tilt funds in general may carry downsides like higher trading costs or expense ratios, as well as the fact that they naturally have a smaller investment universe as companies are excluded. And, as with all investments, it’s possible you’ll invest in an under-performer.  

What this means for you

Investing with a positive tilt means investing to make a difference. If you’re ready to start tilting toward a cleaner, greener future, Q.ai’s Clean Tech Kit can help. 

Disclosures

Q.ai is the trade name of Quantalytics Holdings, LLC. Q.ai, LLC is a wholly-owned subsidiary of Quantalytics Holdings, LLC ("Quantalytics"). Quantalytics offers automated financial advice tools through Quantalytics Investment Advisors, LLC ("QAI"), an SEC-registered investment advisor. QIA’s investment advisory services are ONLY available only to residents of the United States. Disclosures concerning QIA’s investment advisory services are available on its Form ADV filed with the SEC. The content in this newsletter is for informational purposes only and does not constitute a comprehensive description of Q.ai's investment advisory services.

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