Creditease WM launched Toumi RA, a fully automated robo advisor in May this year, with nine different risk portfolios investing in US-listed ETFs. Minimum investment is set at $500, and management fees are waived. Each portfolio has up to 20 ETFs, depending on the asset size.
“At the first stage we introduced US dollar assets. It allows investors to stay out of the RMB depreciation risks and add value to the portfolio. Second, it is easier to achieve global allocation across regions and assets given the broad range of ETFs listed in the US market.”
The cheap fees and make the use of US ETFs more attractive, he believes.
As of the end of last year, there were 127 ETFs listed on the onshore bourse with RMB 400bn ($57.7bn) of assets under management, compared to a total number of product offerings of about 1,500, representing $2trn, according to the firm.
Modest takeup of robos
The Chinese government grants individuals a foreign exchange quota of $50,000 a year. Wang did not disclose the number of users or the assets under management.
But six months after the launch of the service, he said most users have about several thousand US dollars of investments, which is still a relatively small size.
“The majority of the users also seem to invest on a trial basis and don’t stay invested during volatile markets as a robo advisor is still a new thing. We observe some redemptions when the market retreats.”
The firm plans to launch a new set of RMB-denominated robo-advisory portfolios in the first half of next year. Investment focus will be on China and Hong Kong markets. The portfolios will include onshore listed ETFs as well as actively-managed mutual funds and Creditease’s own P2P products, Wang noted.
The core target of the firm’s robo advisory is the middle class with net assets of a few million RMB. “They have investable assets but not enough to use a full private banking service. The robo advisory is the most suitable tool for them.”
However, there are still hurdles in the China market, he noted. “The biggest challenge is the low recognition and acceptance of the robo advisor-style passive investment theory to look for long-term, sustainable and stable returns.”
Robos are unlikely to achieve economics of scale in the short run, and providers will have to educate the investors over the long-term to help the markets mature, he said.
So far, no specific guidelines or licenses are required for robo advisors. Hence the market is not quite transparent, he added.
Still, Wang observed that the high costs to acquire new customers online is a barrier for small-scale players who want to join the market.
On a more positive note, he said the rebalancing of the Chinese economy will push investors to be more aware of risks. “It is impossible to have many high-return low-risk investments in China like what we had in the past.”