Hong Kong-based Magnum Research has moved away from just being an asset allocator to becoming a stock-picking manager with the launch of “SmartStock Portfolios” on its robo-advisory platform Aqumon.
Robo-advisors have traditionally been perceived as asset allocators, providing a pool of ETFs, or in some cases, mutual funds, to construct-risk based portfolios for clients. Generally, they are perceived as disruptors of mainly retail distribution, with asset managers directly providing their products to robo platforms.
Unlike its other strategies that make use ETFs, Aqumon’s new service makes use of data and algorithms to select 10-20 stocks to construct the portfolios. Investors can choose from six thematic portfolios that invest in the US, Hong Kong and China markets, according to the firm’s website.
Aqumon’s thematic strategies
| Portoflio name | Investment universe | Number of stocks (standard / premium)* | Minimum investment (standard / premium)* |
| Quality Blue Chips | China A-shares | 10 | RMB 100,000 ($15,000) |
| Hidden Gems | China A-shares | 10 | RMB 100,000 |
| Chinese Tech Stars | Hong Kong stocks | 6 / 10 | HK$100,000 / HK$250,000 ($12,898 / $32,246) |
| Global Tech Giants | US stocks | 10 / 20 | $2,500 / 5,000 |
| Business Winners | US stocks | 10 / 20 | $2,500 / 5,000 |
| Profit Makers | US stocks | 10 / 20 | $2,500 / 5,000 |
Magnum’s move to launch its own stock-picking strategies to retail investors comes after it obtained an asset management licence (Type 9) from Hong Kong’s Securities and Futures Commission in November 2019, with the intention to eventually launching its own AI-driven stock-picking strategies to retail investors in the SAR.
“The decision to launch these stock portfolios was driven both by investor demand and to expand our product offering,” Ken Shih, head of sales and marketing at Magnum Research, told FSA.
“Specifically, what we noticed during the rally from the March sell-off last year was that more of our clients were asking about stock-based solutions,” Shih said, adding that the firm also plans to offer individual stock trading solutions by the third quarter.
However, this is not the first time that Magnum Research made use of its technology to develop stock-picking strategies. In 2017, Magnum and China Asset Management in Hong Kong co-launched an AI-powered China A-share portfolio, which is only available to professional investors.
Magnum provides the software that constructs the portfolio, while China AMC is the named portfolio manager that executes the trades based on the instructions it is given.
Shih noted that the algorithm on the China AMC strategy is different from the one being used on SmartStock Portfolios.
“Although they are both factor-based in terms of its investment framework, the algorithm that we employed for our SmartStock portfolio is different from the A-share strategy that we previously offered. Relatively speaking, the SmartStock strategies are less ‘predictive’ in nature and rebalance/turnover is less frequent (once every three months versus monthly),” he explained.
Shih added that while the algorithm rebalance the SmartStock portfolios once every three months, the firm is exploring to rebalance these strategies more frequently in response to client feedback.
“The key as always will be balancing potential return, risk and also cost, since rebalancing frequently increases costs for our clients.”
Since their launch last month, the most popular portfolios have been the Global Tech Giants and Chinese Tech Stars, according to Shih.
FACTOR INVESTING
Magnum makes use of factor investing to construct the new thematic portfolios on Aqumon. According to the firm’s website, its quantitative research team has developed a “PowerFactor” methodology to identify factors investors should target and systematically screens for them.
The investment methodology first screens the investment universe to select a pool of high-quality stocks. It then applies six factors that most influence sustainable profitability to develop a standard scoring criteria, and then rank all the stocks that have been screened.
These factors include return on net assets, gross profit on equity, operating cash flow on equity, gross profit margins, ratio of total assets and Ebitda on net assets.
The firm’s algorithm then selects 10-20 stocks from these rankings and calculates how much to invest each.
DIVERSIFYING OFFERINGS
With the competition growing in the online investing space, robo-advisors, as well as stock trading apps in the region, have made moves to diversify their investment offerings.
Singapore-based Stashaway, for example, launched in 2019 a stand-alone income strategy that invests in equity, bond and Reit ETFs.
Kristal AI, which offers its algorithmic advisory offering in Hong Kong and Singapore, gives users the option to invest in thematic “Kristal portfolios”, which invest in a collection of ETFs that fall under a theme. Users also have the option to invest in individual ETFs that are available on the platform, the app shows.
Futu Securities in Hong Kong meanwhile made its foray into wealth management in 2019 with the launch of the “Money Plus” fund platform on its stock trading app. Money Plus is a collection of equity, fixed income and multi-asset portfolios that invest in various mutual fund products. Users of the app also has the option to select individual mutual funds.
