Three portfolios for each robo-advisor are presented: cautious, balanced and aggressive.
The purpose is to highlight the practical angle – how robo-advisors allocate and how they perform over the long-term, particularly when there is a downturn.
Note that the robo-advisors operate in different markets and offer different products. In FSA‘s presentation, they are not competing against each other, but against their own benchmarks.
FSA Robo-Advisor Showcase
Performance on 1 May 2018
Algebra is a robo-advisor offered by Malaysia-based Farringdon Group. It was launched in July 2017. It offers sharia-compliant and conventional portfolios. FSA features three non-sharia portfolios.
The basis of Algebra’s portfolios is a smart-beta stock-picking strategy developed by Singapore-based Farringdon Asset Management. The portfolio consists of around 50 US stocks from the S&P 500 universe. They are selected based on the analysis of portfolios of ten highly rated active US equity fund managers. From each manager the algorithm chooses five stocks in which their fund is overweight, to include in the Algebra portfolio. The three model portfolios presented here contain a different allocation of fixed income to manage the risk profile. The annual fee is 0.85%.
Algebra’s portfolios continued to experience higher volatility than their benchmarks. They delivered positive returns after two months of substantial losses. In March the conservative portfolio posted a 0.12% gain, the balanced portfolio a 0.37% gain and the aggressive portfolio a 0.59% gain.
Beijing-based Creditease Wealth Management launched Toumi RA, its robo-advisory platform, in May 2016. It is currently offered to investors in mainland China. It offers offshore US dollar-denominated portfolios of global ETFs, holding equity and bond ETFs as well as gold and real estate. It has nine levels of risk for investors to choose from. FSA features three portfolios with the risk levels: 2 – second lowest, 5 – moderate and 8 – second highest. Creditease does not charge fees.
Toumi RA’s portfolios target a specific level of volatility. The asset allocation is adjusted if the volatility deviates from the target. In April, the allocation to equities in the balanced portfolio decreased to 51% from 55% and that to fixed income increased to 30% from 28%. The allocations in the cautious and aggressive portfolios remained approximately the same.
In April the conservative and the balanced portfolios lost 0.16%, and the aggressive one lost 0.57%, while the balanced and aggressive benchmarks delivered positive returns.
In business since 2008, Marketriders is offered by the US-based brokerage Sogotrade. It was re-launched in March 2017 as a full service robo-advisory service targeting US and Asian clients. Sogotrade has offices in China, Hong Kong and Taiwan. It offers US-based accounts, and its model portfolios consist of US-based ETFs. Marketriders charges the advisory management fee of 0.265% per year and no transaction fees.
On 1 March, FSA‘s hypothetical investments at Marketriders were switched to the new low-volatility multi-factor portfolios which the firm is rolling out to its clients. The new portfolios target higher returns per unit of risk by incorporating value and low-volatility ETFs.
As a result, the asset allocations have changed slightly. The cautious portfolio now holds only 20% in equities, down from 24%, while the allocation to alternatives (real estate) grew to 5% from 2%. The balanced portfolio now holds 53% in equities, up from 51%; a lower allocation to alternatives makes up the difference. The aggressive portfolio has shifted around 5% of assets from alternatives to fixed income.
The cautious portfolio lost 0.24% in April, the balanced one lost 0.18% and the aggressive gained 0.01%.