Asked on 06 May 2020
At Kristal.AI, we use a number of indicators and you can look to follow those too but main ones I personally look at are RSI of relevant ETF and VIX index. Our algorithms are utilizing other information like cross asset correlations, investment committee's forward looking views along with various price data of relevant ETFs. ETFs are also shortliseted based on CAGR, Sharpe and Return/drawdown.
A lot of this may sound daunting which is why we have made it easier by just saying #trustthealgo or for amounts 50K USD reach out to our advisory / RMs for detailed explanations.
Economic indicators are measures that offer insight regarding economic activity. It could be useful for doing short term trading where you aim for the lag between the leading indicator and current price through various indicators such as RSI, Stochastic oscillator and Williams %R. Hoevever, the roboadvisors do not carry this out.
Stock market is also a proxy to gauge expectations for the future. If you look at the US market for example, it has been rising recently despite still in a ongoing pandemic because of expectations of the future benefits from the stimulus package. Hence, using a leading indictor, which is used to predict future economic conditions, to predict stock market is not feasible.
At AutoWealth, we emphasis on 3 areas: Diversification, Risk Management and Portfolio Rebalancing.
We place strong emphasis on portfolio allocation and diversification without market speculation. All AutoWealth portfolios are diversified across more than 8,000 stocks and 600 government bonds. These assets span across 4 major geographical regions (US, Europe, APAC & Emerging Markets) as well as across all major industries. As such, AutoWealth portfolios are more defensive against market turmoil than a portfolio that is concentrated only in a few asset classes.
We also place importance on Risk Management and mandate all clients to hold a certain allocation to government bonds. Government bonds' coupon payment and principal repayment are guaranteed by the respective governments, making them an investment safe haven during periods of market stress.
Risk is also actively managed through real-time, threshold-based Portfolio Rebalancing. From time to time throughout the COVID-19 market fluctuations, AutoWealth has been taking some profit on government bonds and using the funds to accumulate more stocks whilst they are temporarily trading at a discount. (Sell High, Buy Low) This is designed to help clients maintain a consistent risk profile during volatile markets, and it consequently locks in extra returns when financial markets recover from the temporary correction.
Our Portfolio Rebalancing is supported by well-established research, including those documented in “Pioneering Portfolio Management David F. Swensen, CIO of Yale Endowment Fund”. The research concluded that threshold-based rebalancing statistically generates extra investment returns by exploiting excessive price volatility.
We use many different economic indicators and one such LEI is the Conference Board Leading Economic Index and Freddy talks about it in detail here, in our latest CIO Newsletter: https://www.stashaway.sg/r/using-market-data-to-navigate-economic-uncertainty.
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