Frequently Asked Questions
Client-centered. Most financial advisors measure their success by growth in their AUM and fee income. We measure our success by the investment performance we produce for our clients. We put our clients’ interests ahead of our own by managing the biggest conflict of interest between advisors and their clients: fees. Ours are very low.
Absolute returns. We specialize in “go anywhere” long/short investing and tactical timing of exposures to asset classes, countries, currencies, sectors, industries and investment factors. Most investment advisors purport to offer diversification, but in reality, their long-only approach and “plain vanilla” orientation mean their returns are all very similar and driven primarily by stock and bond market returns. Our returns are more driven by non-market factors.
Alignment of interests. We invest alongside our clients. For qualified clients, we offer a performance-based fee schedule, meaning we only get paid to the extent that we generate returns.
Scientific investment process. We are a “quant shop.” Our investment decisions are based on hard evidence—not subjective guessing. The market inefficiencies that we exploit are validated by respected academic research, thoroughly scrubbed data and constantly updated empirical results.
Although we mostly invest in ETFs (exchange-traded funds), we also use other types of ETPs (exchange-traded products), as well as CEFs (closed-end funds). We do not currently invest directly in individual stocks or bonds.
In our Multi-Strategy Portfolio and Custom Core Portfolios, we only invest in long positions, but in our Global Macro Portfolio, we invest in both long and short positions.
Additionally, in our Multi-Strategy Portfolio and Custom Core Portfolios, we do not use any leverage, but in our Global Macro Portfolio, we use leverage up to 2.5 to 1.
At Sapient, we use the term ETF as shorthand to connote all exchange-traded products (ETPs). Technically, ETPs include four different legal structures:
- Exchange Traded Fund (ETF): An open-ended registered investment company (RIC) or unit investment trust (UIT).
- Exchange Traded Vehicle (ETV): An open-ended trust or partnership. (Seldom used.)
- Exchange Traded Note (ETN): An unsecured debt obligation of a public company issuer that pays the holder the total return of an underlying index or other benchmark after subtracting fees.
- Certificate: A security with complex debt instrument characteristics. (Seldom used.)
Like mutual funds, ETFs offer investors a convenient way of owning a portfolio of securities, except ETF shares are traded on stock exchanges.
An ETF combines the pooled investment feature of a mutual fund (which can be bought or sold at the end of each trading day for its net asset value) with the tradability feature of a closed-end fund (which trades throughout the trading day at prices that may be more or less than its net asset value).
Nearly all ETFs are index funds (only a few are actively managed), and their fees are typically quite low.
ETNs are like ETFs in many respects. Both typically provide returns based upon an index, trade on stock exchanges and tend to have low fees. However, unlike ETFs, ETNs are debt securities issued by an underwriting bank and are backed by the credit of the issuing bank. And unlike ETFs, ETNs do not own the actual portfolio of securities in the index.
Typically, ETNs are based upon indexes of securities that are illiquid and expensive to trade; strategies that have high turnover and/or high taxes (e.g., futures); or are tied to indexes in countries that restrict foreign ownership. If held longer than one year, any gains on sale may be considered long-term gains for tax purposes, giving ETNs an important potential tax advantage over ETFs.
Like open-end mutual funds, CEFs offer investors a convenient way of owning a portfolio of securities, except the shares are traded on stock exchanges during the trading day rather than traded directly with the fund company at the end of the day.
Unlike open-end mutual funds, the number of shares outstanding in a closed-end fund is fixed. The fund price is set by supply and demand. While open-end funds are traded at the net asset value (NAV) of the underlying portfolio of securities, closed-end fund prices may vary from the NAV–at times by a substantial amount. Typically, closed-end funds trade at a discount to their NAV.
We use Interactive Brokers (IB)* as the preferred custodian for our client accounts. Not only are they arguably the lowest cost custodian, but they also offer excellent trading technology. They have many sophisticated trading algorithms that help to ensure the best execution possible.
For more information regarding IB and their current fee schedules, please go here.
IB may be the largest broker you’ve never heard of. They are a publicly traded firm with substantial consolidated equity capital. The public owns only 11.5 percent of the brokerage firm and the employees own the remaining 88.5 percent, which means they participate in the downside as well as the upside.
Consequently, they run the business very conservatively. Unlike most investment banks, they own no material positions in derivatives, CDOs, MBS or CDS. They have reported solidly positive earnings for the past 20 years, including 2008.
Customer money is segregated in special bank or custody accounts. Their real-time margining system marks all positions to market continuously, and all customer orders are credit vetted before being executed to ensure adequate margin.
Currently, customer securities accounts at IB are protected by the Securities Investor Protection Corporation (SIPC) for a maximum coverage of $500,000 (with a cash sublimit of $250,000) and under IB’s excess SIPC policy with certain underwriters at Lloyd’s of London for up to an additional $30 million (with a cash sublimit of $900,000).
Futures and options on futures are not covered. As with all securities firms, this coverage provides protection against failure of a broker-dealer, not against loss of market value of securities.
Our investors own and have complete control over their accounts. Sapient Investments is given trading authority, which can be revoked by the client at any time.
To get started, we will email you a link to IB’s website, which will guide you through the process of opening an account. The application process is entirely automated and takes about 30 minutes to complete.
We encourage clients to fund their accounts by wire transfer if possible since mailing a check may involve a substantial delay before IB receives the collected funds.
Because we invest in funds rather than individual securities, you’ll pay two layers of fees—one for the underlying funds and another for our active management of the portfolio of funds. We recognize that costs matter and we aim to provide a high degree of performance value at a low cost. Most of our long positions are in low-cost ETFs.
In our Global Macro Portfolio, short positions roughly equal long positions. The expenses paid out on long positions are roughly offset by the beneficial depreciation in value on short positions due to expenses. The dividend income on long positions is roughly offset by the cost of paying out dividends on short positions. On the other hand, borrowing a security to sell it short incurs a stock loan fee. Also, to the extent that margin is used, margin balances are subject to an interest charge. Our research indicates that IB’s margin rates and borrow costs are very competitive.
Sapient's absolute return strategies are designed to compete with absolute return-style hedge funds, which typically charge an asset-based fee of 2% and a performance-based fee of 20% of profits. Our intention in fixing our fees is to be less expensive than the typical hedge fund or fund-of-funds. Likewise, our fees for Custom Core Portfolios are extremely competitive relative to most advisors. Please see our fee schedule for complete details.
*Interactive Brokers LLC is not affiliated with and does not endorse or recommend Sapient Investments. Interactive Brokers provides execution and clearing services to customers of Sapient Investments.