One of the common knocks on automated investing services is that they can only offer a simplistic buy-and-hold strategy that can’t produce alpha or defend against a market downturn the way a traditional advisor can.
It’s a fair criticism, says Jacqueline Matthews, a former Goldman Sachs investment banker who helped spearhead the firm's Asia Pacific business. Passive investing has major peak-to-trough losses that can devastate retirement portfolios, but most people cannot afford the other strategies that HNW advisors and family offices use to safeguard assets.
“The universal problem is everyone is trying to create a portfolio that stands the test of time and weathers the storm through all sorts of cycles,” Matthews told WealthManagement.com. So to create something that can work for investors big and small, Matthews launched a new robo advisor that combines passive, opportunistic and defensive (POD for short) strategies. “The three core tenants that we believe make up a comprehensive wealth management portfolio,” he said.
InvestmentPOD comes equipped with 10 strategies that provides low-cost, automated passive investing in addition to an algorithm actively looking for new investment opportunities and defensive positions. The strategies were designed from proprietary research that draws from both Matthews’ experience at Goldman, working for a HNW family office and from her husband, Peter Matthews', background as the chief portfolio strategies at Mint Investment Management, the first systematic global macro firm to exceed $1 billion in AUM.
“It’s an intensive process to go out and source strategy diversification; a lot of it can be replicated these days in a very liquid manner without all that cost, all that labor,” Matthews said. “We come from [the hedge fund world] so we know that world. The whole point is to be able to give an investor with $1 billion or $100,000 the same exposure to wealth management tactics and strategies with transparency and liquidity.”
The robo is entirely white-labeled without plans for a direct-to-consumer product, and advisors can also integrate their own in-house investment strategies.
Like other robos, the underlying securities are all ETFs, but advisors can also include mutual funds or other liquid securities. The platform doesn’t allow for private equities, real estate holdings or hedging strategies, which Matthews said is an intentional decision to give full transparency to advisors’ clients.
Instead, InvestmentPOD’s algorithm moves assets into cash if there’s a sudden market downturn, but also knows when to reinvest so clients don’t miss out on the upside.
“Some people are still scared after 2008 because they’re just frozen,” Matthews said. “This takes the human emotion out and gets you back in automatically.”
“[Robos] diversify across assets, but you also have to diversify across strategies. It gives you a higher chance statistically of minimizing your losses and getting to your equal or higher place over the long run.”
InvestmentPOD charges advisors a fee ranging from 20 basis points to 90 bps, depending on the firm’s AUM and desired amount of customization. Matthews also guarantees that the company has no plans to run a B2C business, and is committed to giving advisors tools to offer value to clients.
“When the market turns down and you say, ‘just hold on it will come back,’ well that’s what everyone else is saying. With us, [advisors] can show clients what they are going to do and that’s a very powerful message given the industry and where it’s at,” Matthews said.
While InvestmentPOD may be only for advisors, it’s proof that robos can be more than just an automated portfolio of ETFs. Hedgeable has offered alternative investments and hedge fund strategies for a few years now, and Wealthfront recently started offering private loans. It’s only a matter of time before the direct-to-consumer startups create new algorithms for diversified investment strategies.
Advisors may sleep easy tonight knowing their value proposition can’t be touched by the capabilities of robo advisors, but technology is always evolving.