The investment team behind Robinhood Strategies, an SEC-registered investment advisor, has developed a comprehensive approach to creating a range of portfolios for clients. These portfolios are tailored to align with your potential goals, time horizon, and risk tolerance. The team uses the following investing approach for portfolios.

Define investment universe

The team considers a wide range of asset classes when defining the universe of potential investment allocations for portfolios (in general, exposure to these asset classes will be through ETFs, selection of which is described further below):

• Equities around the world and across market caps, such as international developed markets, emerging markets, and US large, mid, and small cap equities
• Fixed income (aka bonds) across type and region, such as US Treasuries, corporate bonds and municipal bonds
• Alternative assets like commodities, real estate, and crypto

In addition, for certain portfolios, the team chooses from approximately 1,400 individual US stocks. These stocks include US mid and large-cap companies, and are filtered by excluding:

• Market capitalizations under $2 billion
• Share prices less than $5
• Entities with insufficient financial data like earnings and debt levels

For retirement portfolios

Securities that may result in unrelated business taxable income (UBTI), such as master limited partnerships (“MLPs”) and certain commodity ETFs, are typically excluded.

Utilizing long term historical returns, correlation, and security analysis, the team has developed strategic asset class weightings between equities and fixed income that, for taxable accounts, range from 100% equities to 100% bonds. For retirement accounts, these range from 40% to 100% equities. Deviation limits are set as acceptable ranges from these broad allocations to manage tracking error and promote alignment with investment objectives.

With these ranges set, the team deploys proprietary factors to analyze stocks. To do this, a comprehensive factor library is utilized to assess the universe of stocks, based on metrics relating to quality, growth, value, income, and momentum. This helps ensure the initial analysis is free from human bias.

For example, quality stocks are identified using metrics like low debt and low variability of historical quarterly earnings, while for growth stocks, key metrics include growth in earnings and sales. Stocks are ranked by these metrics to identify which score best for the various factors.

A quantitative process is then used to create groups of stocks (sleeves) for each factor, such as income, value, and growth. Each may do well in different market cycles and provide diversity in portfolios. These objective-specific stock sleeves can then be used to add individual stocks aligning with the objectives of client portfolios.

They also collect quarterly data on ETFs that represent various asset classes, sub-asset classes, and that represent certain key factors, to help choose what will be best to include in portfolios.

The team then brings it all together to construct portfolios at various risk and return levels, as defined by volatility, and includes additional constraints defined by the team. The results are a group of portfolios that include a diversified mix of ETFs representing various asset classes and, if applicable, individual stocks.

From the resulting set of portfolios, the team then reviews and analyzes valuations, growth prospects, and market sentiment. They also consult third-party research and analyze competitive landscapes, along with macro considerations, such as interest rates and employment stats. With this cumulative work, the team will make adjustments to the investments, and allocations, to create a final set of portfolios.

After portfolios are finalized and implemented, the team monitors the portfolios and the markets daily.

As a separate function, the team has developed a set of questions to ask you to help them understand your financial situation, investment goals, time horizon, and risk tolerance. This information is known, collectively, as your investor profile. The team then uses your answers to recommend a portfolio that matches up with your goals. When your goals change, so can your portfolio, so be sure to keep your Investor Profile up to date.

While all of your investor profile information is important, your time horizon (or time to retirement for an IRA), risk tolerance, and investing objectives carry more weight in the assessment than the other information collected. If something changes, they’ll make adjustments to your portfolio as needed to keep it aligned with your current goals.

Your portfolio will be adjusted and updated regularly by the team to keep it in line with your investor profile and to reflect changing market conditions. As market dynamics shift and the team makes changes to the positioning of portfolios, you’ll be updated in your investing dashboard. For more details, check out Robinhood Strategies insights.

For more information about how to use the charts, check out Robinhood Strategies charts.

In general, when the team reviews portfolios for managed accounts, they’ll consider tax implications based on the account type and the specific situation. For example, for taxable accounts, the team might limit sales that result in taxable gains while considering the overall investment strategy:

• When selling securities: They’ll seek to select specific tax lots to minimize gains, prioritizing any lots with losses first.
• For assets transferred in: They’ll review the positions in light of your portfolio and whether any are held as a gain. If any of them are deemed similar enough to a position the team intends to invest in and the position has an embedded gain, the team may hold all or a portion of the position to limit potential taxable gains.
• For bond investments in taxable accounts: They’ll allocate all or a portion to municipal bond ETFs. Municipal bonds can have better after-tax yields because municipal bond income is typically exempt from federal taxes, and can be exempt from state taxes depending on your state of residence.

All investments involve risk and loss of principal is possible.

For additional information, including about fees and expenses, risks, and conflicts of interest, review the Robinhood Strategies Form Form ADV Part 2A and Form CRS.

Robinhood Asset Management, LLC (“Robinhood Strategies”) is an SEC-registered investment advisor. Robinhood Financial LLC (member SIPC) is a registered broker dealer. Robinhood Securities LLC (member SIPC) provides brokerage clearing services.