{"id":17,"date":"2025-12-03T21:46:32","date_gmt":"2025-12-03T21:46:32","guid":{"rendered":"http:\/\/p58.587.mywebsitetransfer.com\/zackstailoredmodels.com\/insights\/?p=17"},"modified":"2026-01-18T15:01:59","modified_gmt":"2026-01-18T15:01:59","slug":"incorporating-factor-tilts-into-tailored-model-portfolios-engineering-vs-assembly","status":"publish","type":"post","link":"https:\/\/zackstailoredmodels.com\/insights\/2025\/12\/03\/incorporating-factor-tilts-into-tailored-model-portfolios-engineering-vs-assembly\/","title":{"rendered":"Incorporating Factor Tilts into Tailored Model Portfolios: Engineering vs Assembly"},"content":{"rendered":"

Custom and tailored models can enable advisors to deliver personalization, risk management, and a truly unique value proposition to their clients. But when factor tilts are diligently incorporated into these models, the real power of customization emerges\u2014through the potential for risk adjusted returns and lower unintentional exposures.<\/em><\/p>\n

How to Customize a Model Portfolio with Factor Tilts<\/h3>\n

Factor tilts tend to be most effective when layered on top of a model\u2019s basic asset allocation, without altering that foundational structure. Preserving a model\u2019s optimal allocations not only prevents overconcentration in individual market-cap segments, sectors or styles, but also ensures that the factors improve the overall portfolio. The process of integrating factors tilts consists of the following steps:<\/p>\n

1. Identify the correct factors.<\/h3>\n

Each factor serves a distinct role in defining model behavior, whether it is to manage risk or increase diversification, and these factors are selected according to investment objectives. Common factors include:<\/p>\n

    \n
  • Quality<\/li>\n
  • Value<\/li>\n
  • Momentum \/ Earnings Revisions<\/li>\n
  • Low Volatility<\/li>\n
  • Size<\/li>\n
  • Dividend\/Income<\/li>\n<\/ul>\n

    2. Analyze current exposures.<\/h3>\n

    Before these factors are injected, the base model is analyzed for unintended concentrations. This analysis helps ensure there is no duplication or overexposure in the portfolio (e.g., Is the portfolio heavily tilted towards large cap? Is the portfolio exposed towards growth or momentum? Is there a country or sector bias?).<\/p>\n

    3. Choose the right mix of ETFs, SMAs and individual securities.<\/h3>\n

    ETFs, SMAs and individual securities are combined to achieve a balance between customization and efficiency.<\/p>\n

      \n
    • The building blocks of the model, ETFs serve as cost-effective vehicles offering low-cost diversification.<\/li>\n
    • SMAs provide an added layer of customization, tax optimization, and professional management.<\/li>\n
    • Individual securities offer the highest level of control, allowing for conviction views and the ability to implement tax-loss harvesting.<\/li>\n<\/ul>\n

      When blended, a model consisting of ETFs, SMAs and individual securities is cost-efficient, highly customized, and
      \naligned with the long-term goals and objectives of the client.<\/p>\n

      4. Define the size and weight of each tilt.<\/h3>\n

      Factor tilts are implemented in one of two ways:<\/p>\n

      a) Core-Satellite Structure<\/strong><\/p>\n

        \n
      • Core:<\/strong> Diversified index exposure, or core ETFs<\/li>\n
      • Satellite:<\/strong> Specific factor sleeves added to tilt the portfolio<\/li>\n<\/ul>\n

        \"\"<\/p>\n

        A core-satellite structure combines broad market exposure with the potential upside of select actively managed strategies\u2014giving investors both stability and opportunity in a single portfolio. This also keeps the portfolio balanced while enhancing factor exposure.<\/p>\n

        b) Proportional Tilt<\/strong><\/p>\n

        Using proportional tilts in a model allows advisors to highlight preferred factors. They can, for example, overweight quality by 10\u201320% relative to the benchmark, increase momentum by 10% or add value by 15%.<\/p>\n

        5. Implement and monitor factor drift over time.<\/h3>\n

        Regular and continuous oversight is critical in a dynamic market environment, where factors constantly rotate and style cycles change. Advisors should:<\/p>\n

          \n
        • monitor factor exposure quarterly,<\/li>\n
        • review for factor drift,<\/li>\n
        • rebalance when exposures stray beyond defined tolerance levels,<\/li>\n
        • adjust tilts based on changing market conditions or updated client goals and objectives, and<\/li>\n
        • analyze performance attribution to confirm the effectiveness of the factor tilts.<\/li>\n<\/ul>\n

          Conclusion<\/h3>\n

          Factor tilts can reduce concentration risk, enhance diversification, and turn tailored portfolios into targeted and optimized models. As off-the-shelf models become commoditized, the Zacks Tailored Model offering allows advisors to deliver customized, research-driven, and institutional-quality investment solutions to their clients.<\/p>\n

          For more information, please contact:
          \n<\/strong>Steve DeMarco, Model Specialist
          \nsdemarco@zacksim.com | Tel. (312) 265-9209 | Cell. (708) 313-8480<\/p>\n","protected":false},"excerpt":{"rendered":"

          Custom and tailored models can enable advisors to deliver personalization, risk management, and a truly unique value proposition to their clients. But when factor tilts are diligently incorporated into these models, the real power of […]<\/p>\n","protected":false},"author":1,"featured_media":18,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-17","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/zackstailoredmodels.com\/insights\/wp-json\/wp\/v2\/posts\/17","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zackstailoredmodels.com\/insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zackstailoredmodels.com\/insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zackstailoredmodels.com\/insights\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/zackstailoredmodels.com\/insights\/wp-json\/wp\/v2\/comments?post=17"}],"version-history":[{"count":7,"href":"https:\/\/zackstailoredmodels.com\/insights\/wp-json\/wp\/v2\/posts\/17\/revisions"}],"predecessor-version":[{"id":28,"href":"https:\/\/zackstailoredmodels.com\/insights\/wp-json\/wp\/v2\/posts\/17\/revisions\/28"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zackstailoredmodels.com\/insights\/wp-json\/wp\/v2\/media\/18"}],"wp:attachment":[{"href":"https:\/\/zackstailoredmodels.com\/insights\/wp-json\/wp\/v2\/media?parent=17"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zackstailoredmodels.com\/insights\/wp-json\/wp\/v2\/categories?post=17"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zackstailoredmodels.com\/insights\/wp-json\/wp\/v2\/tags?post=17"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}