Do robo-advisories really do what they promise?

Added 7th August 2017

FSA joins the robo-advisory discussion by introducing a monthly feature that shows actual portfolio returns of three robo-advisors serving clients in Asia.

Do robo-advisories really do what they promise?

 

“I truly believe that whole question of robotics and artificial intelligence over a time horizon of four to eight years will fundamentally change the banking business.” 

--UBS COO Axel Lehmann

 

Much discussion about the rise of robo-advisors has been theoretical – whether they will support or compete with wealth management or more generally disrupt the industry. Views differ, but private banks, asset managers, regulators and investors are all taking robo-advisors seriously. However, what is missing from the debate is performance. Do the algorithm-driven portfolios actually deliver what they promise?

With that in mind, FSA introduces a monthly feature that shows the performance of three robo-advisors over the next 12 months. US-based Marketriders, which serves China, Taiwan and Hong Kong clients, Tuomi RA based in China and Connect offered in Singapore.

On July 1, 2017, we made a hypothetical investment of $1m in each of these three robo-advisors. The results in today’s first article show what that $1m is now worth. Return results will be published monthly until August 2018.

Three portfolios for each robo-advisors are presented – cautious, balanced and aggressive. However, it should be noted that the robo-advisors are not competing against each other, since they operate in different markets and offer different products, but against their own benchmarks.

The purpose is to highlight the practical angle – how robo-advisors allocate and how they perform, particularly when there is a downturn. Additionally, self-directed individual investors can make a comparison with their own results, wealth managers can check roboadvisor performance to client portfolio results and the rest of the industry may find the data useful in helping to form a judgment about the robo-advisors phenomenon.


 

FSA Robo-Advisor Showcase

Performance on 1 August 2017

 

Benchmark: mix of global equity and bond indices reflecting asset allocation.

Connect is a robo-advisory service offered in Singapore by London-based Crossbridge Capital. It was launched in the late 2016 to serve accredited investors. The portfolios are invested in actively-managed tracker certificates, developed together with Morningstar, which provide exposure to 12 asset classes with a predefined risk-return profile. Connect charges annual fees between 0.20% and 1.25%. 

 

Benchmark: Morningstar Conservative/Moderate/Aggressive Target Risk Indices 

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.

 

Benchmark: Morningstar Conservative/Moderate/Aggressive Target Risk Indices 

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. Marketriders currently has about $1.2bn of AUM. 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.


All returns are in US dollars, net of fees. Creditease and Sogotrade have given FSA direct access to dummy accounts in their systems to monitor our hypothetical investments. Crossbridge sends us monthly return reports.

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