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 April 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%.
Based on a stock-picking strategy, Algebra’s portfolios have so far experienced a higher volatility than their benchmarks, outperforming them when the markets were up in the second half of 2017, and underperforming when they were down in the last two months. In March the conservative portfolio posted a 3.5% loss, the balanced portfolio a 4.4% loss and the aggressive portfolio a 5.3% loss.
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 March, the cautious and balanced portfolios added to their alternatives allocation by reducing equity and fixed income. The conservative portfolio, in particular, increased its alternatives allocation to 19% from 15%, and the balanced one to 18% from 15%. The alternatives include gold, real estate and a US dollar index ETF. The asset allocation of the aggressive portfolio has remained unchanged since August 2017.
The Morningstar Conservative Target Risk Index posted a 0.1% gain in March, while the moderate and aggressive indices posted losses of -0.6% and -1.3%, respectively. Toumi RA’s portfolios remained essentially flat, with monthly changes less than 0.1%.
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.
All three portfolios posted positive results in March, outperforming their respective benchmarks. The cautious portfolio gained 0.45%, the balanced, 0.61% and the aggressive, 0.67%.