What is Robo-advisor?

Robo-advisors have emerged as a new way to manage your investments, utilizing software products powered by algorithms. They are not actual robots but digital platforms that provide automated, algorithm-driven financial planning services. In this article, we will explore what robo-advisors are, how they work, the available robo-advisor platforms in Malaysia, and the advantages and disadvantages of investing through robo-advisors.

Robo-advisors use data and technology to deliver automated and personalized portfolio management, offering an alternative to traditional financial advisors. They utilize algorithms to recommend portfolios based on factors such as investment timeline, risk tolerance, and financial goals. Most robo-advisors follow passive indexing strategies optimized with modern portfolio theory (MPT), which aims to maximize returns based on a given level of market risk.

Investing through robo-advisors offers several benefits. They provide high-quality research based on Nobel Prize-winning investment models and offer exposure to various markets through diversified portfolios. Robo-advisors typically have lower fees compared to traditional advisors, making investing more cost-effective. They also democratize investing, allowing younger investors and those with lower net worth to participate. The platforms are intuitive, straightforward, and low-maintenance, providing a hassle-free investment experience.

However, robo-advisors have their limitations. They lack the human element and personalized touch that traditional advisors offer, and algorithms are limited to the information provided by investors. Robo-advisors may not be suitable for complex financial situations that require in-depth analysis and subjective decision-making. Additionally, they may not provide the flexibility to choose specific securities or tailor portfolios according to individual preferences.

In terms of security, licensed robo-advisors in Malaysia operate under the regulations of the Securities Commission (SC) and have safeguards in place to protect investors’ funds. It is important to choose licensed platforms and carefully review their transparency, capabilities, and strategies before investing.

List of Robo-advisors in Malaysia

1.StashAway
StashAway, the first licensed robo-advisor in Malaysia, was founded in Singapore and offers a digital investment advisory platform. Unlike other platforms, StashAway does not require a minimum deposit to start investing. Since its launch in July 2017, it has generated annualized returns ranging from 11.6% for its highest risk portfolio to 4.3% for its lowest risk portfolio. Notably, all core growth-oriented portfolios have outperformed their respective benchmarks of the same risk level. StashAway has received backing from Eight Roads, the global investment arm of Fidelity, and Square Peg, one of Australia’s largest venture capital funds. Its product lineup includes flagship global portfolios, an income portfolio, StashAway Simple (a cash management product), and a 50% Shariah-compliant version of their global portfolio.

2.Wahed
Wahed Invest, founded by American Junaid Wahedna in 2017, holds the distinction of being the world’s first automated Islamic investment platform or robo-advisor. In 2019, it introduced its inaugural ETF, the Wahed FTSE USA Shariah ETF (HLAL US), which is listed on Nasdaq. This fund provides exposure to large and mid-cap U.S. companies that adhere to Shariah principles. Notable stocks included in this ETF are Apple, Johnson & Johnson, Procter & Gamble, and Adobe Inc.

Compared to StashAway, Wahed Invest offers a more limited selection of assets. Currently, investors can gain exposure to Malaysian stocks through the MyETF MSCI Malaysia Islamic Dividend, U.S. stocks via the Wahed FTSE USA Shariah ETF, as well as cash and gold.

Wahed Invest is a fully Shariah-compliant platform, making it suitable for practitioners of Islam and individuals seeking ethical investment opportunities.

3.MyTHEO 
MYTHEO, an investment platform, is operated by GAX MD Sdn Bhd, a joint venture between Silverlake Digital INX Sdn Bhd and the Japanese fintech company Money Design Co Ltd.

The name MYTHEO is derived from a combination of Malaysia and Theo, the younger brother and confidant of the renowned Dutch painter Vincent van Gogh.

As the first Malaysian company in its field, MYTHEO is the second platform to receive approval from the SC (Securities Commission).

The platform utilizes an algorithm that tailors an investor’s portfolio by incorporating weights from three distinct sub-portfolios: Long-Term Growth, Income, and Inflation Hedge portfolios.

Furthermore, each functional portfolio is constructed using a separate set of algorithms that leverage over 25 ETFs encompassing various asset classes across multiple global regions.

By employing this two-stage portfolio construction approach, MYTHEO enables investors to indirectly own a portion of more than 10,000 securities. This methodology ensures a well-diversified portfolio that is relatively resilient in the face of market downturns, minimizing the overall impact on investments.

4.Raiz
If you are looking to invest small amounts of money or spare change, you might consider utilizing the micro-investing platform Raiz.

Launched just recently in July 2020, Raiz enables users to automatically invest their leftover change from everyday purchases into ASNB’s variable price funds (unit trust).

This approach offers a highly efficient means of maximizing the value of every cent spent. Rather than letting your loose change go to waste, why not stretch your Ringgit by saving and investing it instead?

However, Raiz also caters to users who prefer lump-sum investments or recurring investments.

The app is a joint venture between Jewel Digital Ventures, a subsidiary of PNB, and Raiz Invest Australia. Initially, it is exclusively available to Maybank account holders.

Raiz optimizes six diversified portfolios and implements Modern Portfolio Theory (MPT), which is a widely utilized methodology among robo-advisors.

Good luck and we hope you found this piece to be informative!

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