On July 1, 2017, we made hypothetical investments of $1m in each of the three robo-advisors featured below. The results in today’s article show what that $1m is now worth. Return results will be published monthly until July 2018.
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 June 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%.
In May, the three portfolios followed their benchmarks into the positive territory. The conservative portfolio returned 1.1%, the balanced one 1.71% and the aggressive one 2.27% during the month. The latter two managed to slightly outperform their benchmarks.
Beijing-based Creditease Wealth Management launched Toumi RA, its robo-advisory platform, in May 2016. It is currently offered to mainland China investors. 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 May, the allocation to fixed income was increased in all three portfolios. The cautious portfolio now holds 56% of fixed income, up from 52%, while allocation to alternatives was reduced to 15% from 20%. The allocation to fixed income in the balanced portfolio was increased to 35% from 30%, also mostly offset by reducing the allocation to alternatives. The aggressive portfolio reallocated 5% from equities to fixed income, reducing the equity allocation for the first time since FSA started monitoring it.
All portfolios underperformed their benchmarks in May. The conservative and the balanced ones delivered 0.08% return, while the aggressive one lost 0.24%.
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.
All three portfolios outperformed their benchmarks in May. The conservative portfolio delivered a 0.74% return, the balanced one 1.04% and the aggressive one 1.27%.
