Robo-Advisor Performance Review: 2H2022
Robo-Advisors in Singapore had a mixed 2H2022. Their Flagship portfolios underperformed while some Thematic portfolios did well.
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StashAway is an investment platform where you can buy ready made all-in-one portfolios that contain equity, fixed income & other asset classes and are tailored to your risk appetite i.e. its a Robo-Adviser. The portfolios are made of US listed passive ETFs that invest globally and are low cost. StashAway does active asset allocation in the portfolios using their proprietary framework.
StashAway has a great set of tools to guide you through goal based investing. The website and app are easy to use. They have a simple asset size based fee structure and were the cheapest platform for assets more than S$500k on our calculations. StashAway is licensed by MAS, is regularly audited and keeps your money in an omnibus account separate from StashAway’s funds.
We loved StashAway’s goal based investing tools but it was not our most preferred platform due to their active investing approach with some concentrated positions and lack of a CPF investment option. But for those two factors, StashAway would be the best Robo-Advisor in Singapore.
StashAway offers the best tools for goal based investing and is the lowest cost Robo Advisor for portfolios larger than S$500K.
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StashAway is an investment platform with 4 products:
Sophisticated Tools The Goal Based tool at StashAway was the most sophisticated and helpful of all the Robos we tested. It calculates the inflation adjusted target amount needed for different types of goals based on your answers (educating child in US vs. SG, number of guests at wedding, location and size of house, number of years remaining etc.) and recommends the appropriate risk level for goal.
Income Portfolio StashAway offers a Income Portfolio option that invests in Singapore based assets to generate income with a relatively lower risk profile. You can choose to reinvest or receive income as its distributed. There is a minimum ticket of S$10k for this portfolio.
Active Asset Allocation StashAway builds its portfolios using low cost passive ETFs but manages asset allocation actively. This means the equity portfolio is very different from a broad market index (e.g. MSCI ACWI) and the mix of ETFs in your portfolios may change over time. This is done using their proprietary ERAA framework which relies on economic regimes, valuation and technical factors to adjust asset allocation over time.
Cheapest for SG$500k+ StashAway’s tiered pricing more makes it the cheapest Robo advisor for people with more than S$500k on the platform. Its fairly competitive between S$200k to S$500k but on the expensive side below S$100k AUM.
Thematic Portfolios StashAway’s Thematic portfolios (Healthcare, Tech etc) do not have 100% thematic exposure. Instead they include non-thematic assets to make the portfolio fit your stated risk preference.
StashAway obviously does not reveal the algorithm behind their Robo. However we experimented with the app to see if we could figure out how it worked. What follows is our understanding based on this.
Risk Index StashAway assigns something called a Risk Index (RI) to each portfolio. A portfolio with, say, a 16% Risk Index is constructed so that there is only 1% probability of it losing more than 16% in any given year. This is a reasonable approach. But it is important to understand that this does not mean that a portfolio cannot lose more than its Risk Index in a given year. There is a 1% chance that it does and its possible that when it does, it won’t just lose a little more than its RI but a lot more.
Portfolios There are a total of 12 portfolios in the flagship strategy corresponding to different StashAway Risk Indices (RI). Of these, RIs from 6.5% – 22% are grouped under the core portfolios while 3 portfolio from 26% – 36% RIs are grouped under the Higher Risk category.
For general investing you simply choose a Risk Index and get the portfolio corresponding to that. For goal based investing, the Robo takes a few inputs from you based on the goal type and recommends a total amount and an appropriate Risk Index. You can choose a different RI from what is recommended if you want for these goals.
Apart from the flagship strategy, StashAway has one portfolio each for the Income (12% RI) and Simple strategies. The RI for the Income portfolio cannot be changed and Simple does not have an RI.
For Thematic portfolios, you can only choose two RI options in the core strategy 20% and 22% while there are 5 higher risk option from 25%-45% in increments of 5%. So you can construct a total of 21 Thematic portfolios (3 Themes and 7 RIs).
Portfolio Construction StashAway constructs portfolios using their ERAA framework which relies on assessing the macroeconomic regime, valuation gaps relative to history and certain technical factors. The portfolios are built using low cost ETFs and do not engage in selecting specific stocks for the equity portion.
However they do practice active asset allocation. They may change the mix of ETFs in your portfolios based on their ERAA framework.
StashAway points out on their website that 90% of active portfolio managers underperform the benchmarks and that asset allocation is responsible for 80-96% of a portfolio’s return profile. Even if those two facts are correct, in our opinion, that does not imply that active asset allocation is better. There is no data presented on what % of asset allocation strategies underperform.
In our comparison, StashAway’s equity portfolios were very different from a truly passive portfolio (MSCI ACWI). There were large differences in country and sector allocation relative to the MSCI ACWI and on our measure, StashAway had the one of the more active portfolios among peers.
Specifically, the exposure to USA was a lot lower while the exposure to China and Australia was a lot higher. While StashAway does not provide a sector wise breakup of its portfolios, I suspect the differences here would be large too. For instance, at the time of writing the MSCI ACWI had a weight of <4% in the energy sector while the StashAway 22% SRI Equity portfolio had a weight of 12.8%. In consumer staples, ACWI weight was <7% while the StashAway portfolio was at 23%. The entire China exposure in the StashAway portfolio was through the China Internet ETF.
I suspect StashAway performs some quantitative wizardry on the back-end that indicates that these portfolios replicate a return profile similar to the ACWI or another benchmark in a more efficient way. I was not able to get a satisfactory response from the customer service on this question. I will update the article if they do provide a clarification.
StashAway has a chart that shows these portfolios outperforming the benchmark since inception. However that is not a very long history (starting 2017 or 2019). If the portfolio construction is not trying to replicate the benchmark in a more efficient way and the deviations vs. ACWI truly are an active bet, then that would be an unacceptable risk in our view.
On our calculations StashAway is the cheapest Robo-Advisor in Singapore for people investing more than S$500K on their platform. It ranks well for assets between S$100-500k but is quite expensive relative to peers for lower AUMs.
The platform fees start from a market high 0.8% for assets below S$25k but drop off to a market best 0.2% for assets above S$1m. There is no platform fee for the FD alternative StashAway Simple.
The total expense ratio charged by the ETF manager is 0.2% for the flagship portfolios and 0.4% for the Income portfolios. Thematic portfolios are likely more expensive. Since bulk of the ETFs in their portfolios are in US, funds deposited in SGD are converted to USD. StashAway claims their vendor converts FX at interbank rate, which is possible, but the FX market can be tricky. You can deposit USD but the minimum ticket for that is $10k.
Business StashAway is a brand of Asia Wealth Platform, which has a Capital Market Services License for Fund Management and Dealing in Collective Investment Schemes (Mutual Funds, ETFs etc.) from the MAS.
As a part of the process for approving this license, MAS ensures that the officers of the company are “Fit and Proper”, have competency in core business areas such as fund management, risk management, operation and compliance. Licensees should also have adequate capital and processes in place to manage risk and compliance related issues.
They need to be audited internally on a regular basis and independently at least once a year. They must also ensure that customer assets are valued independently and reported accurately via a 3rd party or an in-house department that operates independently of the investment management function. The annual audit is supposed to additionally verify the independent valuation.
Most importantly the license requires StashAway to keep customer assets segregated from their own assets and with an independent custodian so that they are protected and available to customers in the event of StashAway going bankrupt or facing other difficulties. StashAway is also regulated in Hong Kong, Malaysia and Thailand.
StashAway uses DBS for keeping your deposits, Saxo Capital Markets for securities in your portfolio and HSBC Hong Kong for the StashAway Simple product.
StashAway has raised a substantial amount of equity from reputed venture and other investors like Sequoia in mid-2021. The CEO Michele Ferrario comes with experience as CEO of Zalora and Rocket Internet in Italy and Pakistan. The CIO Freddy Lim was Head of Derivatives at Nomura and ran cross asset portfolios at Millennium Capital and Citigroup.
UI/UX We found StashAway interface very easy to use and consistent across website and the app. The flow of each action is smooth and logical as the system guides you step-by-step to completion. Most common tasks can be completed in a few intuitive steps and we were never lost or confused.
Signing Up StashAway supports onboarding of Singapore Citizens and PRs through Singpass. This means your account is ready and fully functional within a few minutes with no paperwork required. The process for non SC/PR is does require more effort and we did not test it.
Funding Once ready the account can be funded via PayNow (SGD only) or Bank Transfer. PayNow transfers are very convenient using the QR code provided. You do need to manually copy the reference code into the PayNow field which can be anxiety inducing.
In our testing StashAway confirmed receipt of funds on the same day and the investment was complete on the next working day.
Investing Investing on StashAway starts by creating a new portfolio and selecting the saving goal (general, education, mortgage, income etc.). Depending on the goal, the system walks you through selecting your risk profile for the portfolio, or recommends a risk profile, amount and duration (if you chose a goal other than general and income), and finally shows the recommended asset allocation. For most goals other than Income Portfolio you can adjust the risk profile during the review phase.
Recurring investments can be created easily setting the amount you want to allocate to each goal every month. There is no option to choose a different frequency.
Once a portfolio is set up, clicking on it on the home page brings you to the portfolio dashboard that shows performance, portfolio characteristics like asset allocation and country allocation, a projected range for its performance in future and also allows you to edit the risk preference and deposit or withdraw funds from the portfolio.
StashAway Simple You can create only two StashAway Simple portfolio, one funded by cash and one by SRS. Apart from depositing and withdrawing funds from this portfolio, it is also possible to transfer funds from or to another portfolio within StansAway. You can also set up recurring transfers from Simple to other portfolios.
Thematic Portfolios At the time of writing, StashAway offers 3 thematic portfolio in the App but not on the website. These are called Technology Enablers, The Future of Consumer Tech and Healthcare Innovation. Choosing one of these takes you through a few screens of introduction to the portfolio before starting the general investment style flow, where you select the risk preference.
Thematic portfolio are treated differently by the system. First StashAway does not show the range of expected outcomes for these portfolios as they believe these can be quite volatile and any projections can be misleading.
Based on your risk preference, the system allocates on a certain percentage of the portfolio to the Theme linked ETFs with the remaining amount invested in the so called balancing assets, which help contain the risk characteristics of the portfolio to your risk preference.
The default settings allocate about 35% to the thematic ETFs within the overall portfolio.
Accredited Investor Product StashAway assigns a dedicated Wealth Advisor to Accredited Investors (AI). You need income of more than S$300k or net worth >S$2m to qualify as an AI. StashAway plans to provide some exclusive products and services for these clients in future.
Customer Service We interacted with the StashAway customer service on many occasions, usually via e-mail. We found them to be prompt and helpful, usually resolving our query. They are also available on WhatsApp and phone.
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Robo-Advisors in Singapore had a mixed 2H2022. Their Flagship portfolios underperformed while some Thematic portfolios did well.
MoneyOwl is offering up to S$500 in FairPrice vouchers to the first 400 customers who complete a one-time top up of their SRS accounts before 31 Dec 2022.
Robo-Advisors in Singapore had a mixed 1H2022. Their Flagship portfolios outperformed while Thematic portfolios bombed.