Asked on 27 Apr 2020
What steps did each robo-advisor take to help protect their clients' money during the start of Covid-19, and how have you guys adjusted to the situation since?
First and foremost, Endowus believes in passive asset allocation, and not overweighing/underweighing certain asset classes, geographies or sectors during market volatility. Based on research, actively changing asset allocation is not proven to consistently bring in higher returns.
From a risk management angle, we have helped our investors rebalance their portfolios so that they stay to their asset allocation.
On the advisory side, we have reached out to our clients through this webinar** **where Sam, our CIO shared his analysis of the current crisis and investment experiences in previous market crashes to advise clients.
On a more personal finance angle, you can check out this interview with Yahoo Finance, where our chief client officer share her views on investing in crisis.
Hope this gives a flavour of how we help our clients at Endowus!
Hi anon, you can view the performance of our portfolios here. Although the S&P 500 lost 23.5% from its February 19 peak to March 31, Syfe’s popular 15% Downside Risk portfolio only dipped 10.1%. In comparison, a traditionally diversified portfolio such as the benchmark Morningstar Moderate Index dropped 15%.
Syfe's dynamic risk management has made all the difference. Syfe has put in place an automated risk managed investing (ARI) algorithm that adjusts asset allocations to reduce risk across all portfolios in response to rising market volatility.
Due to the spike in volatility seen in February and March, Syfe’s ARI algorithm pulled back on some of the allocation to equities, while increasing the share of lower-risk bonds and commodities.
This rebalancing returned the risk levels of each portfolio back to their target downside risk levels, ensuring that investors are unlikely to lose more than what they are comfortable with losing, given their risk appetite, and can stay invested for a sustained period.
With market volatility still high, Syfe portfolios are currently adopting lower risk and more conservative allocations. But if and when volatility starts to decrease in the coming months, we will re-adjust portfolio compositions to benefit from the recovery.
Kristal.AI believes in an asset allocation approach along with a keen eye on risk metrics which we pull in via the volatility inputs we obtain from the market. In March end our asset allocation algorithms did go more conservative to increase fixed income and gold allocations. The portfolios following this approach differ from other thematic portfolios like All Weather which maintain a balanced allocation across multiple asset classes.
The benefit of a more dynamic approach is that it prevents drawdowns i.e the max loss a portfolio can suffer so one can actually have more firpower to get into the market when markets have either calmed down or at an extreme oversold level. This approach is very similar to how big institutions and funds manage billions of dollars. When markets are crashing, there is not much merit in just hoping and praying everything will be ok. One has to take a risk based approach in a sensible manner so a portfolio has enough firepower to buy when one wants to.
Also for our accredited investors we proactively put hedges in place that can prevent huge drawdowns following a portfolio insurance approach.
Our algos have been back tested in 2008-09 period and March 2020 was a real time validation we got from the market as our approach was able to limit the losses while continue to participate in the upside as markets recovered. So in short I would say having a passive portfolio with some element of risk based asset allocation works best I would recommed to everyone to follow. #trustthealgo
Great question! I'll leave Michele to explain this more on the show but really quickly:
There are a few reasons we have not decided to re-optimise as of yet. The S&P 500's drop of more than 20% from February 19 to March 12 was its steepest or fastest-ever fall from an all-time high to a bear market.
What has ERAA done? (here is an excerpt from our latest CIO newsletter):
"At StashAway, our fundamental principle has always been to keep our clients’ investments prepared for market and economic adversities. First, ERAA® estimates and budgets for extreme risk based on top stress scenarios in history, such as the 2008 Financial Crisis. Then, rather than predicting and reacting to future events, ERAA® builds into your portfolio mechanisms to manage your risk. Mechanisms include allocating a portion of your portfolio to funding currencies, such as the US Dollar and Japanese Yen. These risk measures, amongst others embedded in our investment strategy, have helped reduce the impact of the 2020 black swans on your portfolio.
In addition to managing your risk, our asset allocation strategy determined by our investment framework, ERAA®, ultimately enables your investments to capture opportunities in any economic environment.
Back in mid-August 2019, ERAA® switched to an “All-Weather” strategy for assets exposed to global non-US economies and increased USD exposure in the global portfolios. While our US exposure is still tilted towards growth, using data-driven analysis, ERAA® has been optimised to stay invested as the markets have already priced in the economic impact of COVID-19, the oil crash, and the policy bazookas. What drives the overall stock market is how aggregate economic stimuli stack up against aggregate output. ERAA® continues to analyse new data as they come in, looking at both how the economy shapes up as the COVID-19 crisis unfolds, as well as how the markets react, and what they do price in."
You can read the full article here: https://www.stashaway.sg/r/using-market-data-to-navigate-economic-uncertainty.
Show More Products