frugal

Humans vs Machines: Robo-Advisors in Malaysia

Based on my previous post on reviewing and rebalancing of portfolio, robo-advisor net a higher return % compared to the stocks that I purchased. Does that mean that machines are better at investing than humans? Let’s take a look at the 5 robo-advisors in Malaysia currently that are approved by the Securities Commision (SC).

MYTHEO

MYTHEO uses different algorithms to construct a portfolio via 2 stages. In the first stage, you can adjust the ratio of investment into growth portfolio, income portfolio, and inflation hedge portfolio. Based on MYTHEO’s website, below are the explanations of the 3 functional portfolios that were mentioned above:

  1. Long-term growth portfolio includes only equity ETFs. The goal is to achieve a high return over a long period of time. It is suitable for investors looking for long term capital growth
  2. Income portfolio invests in fixed-income ETFs. The goal is to achieve stable income through the ETF dividends. It is suitable for risk-averse investors
  3. Inflation hedge portfolio invests in assets that are resilient even during inflation. The ETFs have strong correlation with oil, metals, US short-term treasuries and TIPS (Treasury Inflation Protected Securities), and infrastructure and real asset ETFs.

You may check the ETFs inside each of the portfolios in the links below which might change from time to time:

  1. Growth portfolio
  2. Income portfolio
  3. Inflation portfolio

In the second stage, MYTHEO’s fund managers will use different set of algorithms to purchase the ETFs for the 3 functional portfolios above.

Below is the management fee that is charged by MYTHEO:

MYTHEO fees

With just RM100, you can start to invest with MYTHEO. You can use referral code: GOHCHBX75B to get free 6 months management fee when you invest with MYTHEO.

StashAway

StashAway uses their proprietary investment strategy known as ERAA (Economic Regime-based Asset Allocation). It consists of 3 pillars which are:

  1. Economic regimes determine asset allocation
  2. Risk shield
  3. Valuation gaps

In pillar 1, StashAway determined 4 different economic quadrants for the best asset allocation. If the economic situation cannot be matched to any of the 4 quadrants, the all-weather portfolio will be used instead.

StashAway - economic regimes determine asset allocation

For risk shield, StashAway monitors the market behavior based on the 4 quadrants above. It responds to abnormal market behavior by changing the portfolio accordingly. Besides that, risk shield runs daily to react swiftly in case of abnormalities.

Lastly, for valuation gap, StashAway will adjust and optimise a portfolio if an asset class is deemed overvalued or undervalued. It will usually happen once or twice in a year.

To understand more in-depth on ERAA, you may read this article by StashAway.

Now that we have an outline of how StashAway invests, below is their management fee:

StashAway fees

Even if you have just RM10 to spare, you can invest with StashAway. You can use referral code: choohhegwxmp to get RM30k managed for free for free 6 months.

Wahed

Wahed is the 1st and only Islamic robo-advisor in Malaysia currently. It invests mainly into stocks and sukuks (Islamic bonds). Based on your risk preference, it will have a different ratio for stocks, sukuk, gold, and cash. You can take a look at the different risk portfolios here.

There’s only 2 different charges for Wahed based on your investment amount as below:

Wahed fees

With only RM100, you can start investing with Wahed. You can use referral code: chogoh1 to get USD2.50 in your account.

Akru

Akru is Malaysia’s first homegrown robo-advisor. It has a total of 10 profiles for different investing objectives and risks. Therefore, each of the profiles will have different allocation ratio to the 3 components of equity, bond, and cash.

Akru profile

Below are the allocation ratios of the 3 components for each of the profiles:

  1. 5% equity, 94% bond, 1% cash
  2. 15% equity, 84% bond, 1% cash
  3. 25% equity, 74% bond, 1% cash
  4. 35% equity, 64% bond, 1% cash
  5. 45% equity, 54% bond, 1% cash
  6. 55% equity, 44% bond, 1% cash
  7. 65% equity, 34% bond, 1% cash
  8. 75% equity, 24% bond, 1% cash
  9. 85% equity, 14% bond, 1% cash
  10. 95% equity, 4% bond, 1% cash

Based on the allocation,  you can see that as the profile number goes higher, the equity allocation goes higher as well. Therefore, if you are looking for higher risk profile, you can opt for profile 10. However, if you are not sure which profile to choose, they will recommend a profile based on the answers that you fill in when you create an investment goal.

Akru charges as per the image below which is similar to StashAway:

Akru pricing table

However, do take note that there is an admin fee of RM10 for account opening and RM1 processing fee for every online transfer to fund your portfolio.

Kenanga Digital Investment (KDI)

Kenanga Digital Investment (KDI) is the latest robo-advisor that is introduced to the market. It currently offers 2 main services which are KDI Save and KDI Invest.

KDI Save is the nearest alternative to Fixed Deposit (FD). It is a portfolio of Ringgit-based money market and/or fixed income financial instruments. It does not have lock-in period which is the best element over FD. However, although it is low risk, it is still an investment so you may risk losing money.

The minimum investment for KDI Save is only RM100. And to encourage people to invest in KDI Save, they are offering a promotional rate of 3% p.a. until end of 2022. However, for investments above RM200k, it will be using the base of 2.25% p.a.

On the other hand, KDI Invest buys into US ETFs using it’s AI Factor Analytics Machine Learning Engine (FAME). The AI’s algorithm is based on Harry Markowitz’s Modern Portfolio Theory (MPT). Besides that, they have 2 proprietary technologies which are KDI DAAS (Digital Asset Allocation System) and KDI Risk Profiler. With these technologies, the AI predicts the portfolio (DAAS) that gives the highest return based on your risk profile (Risk Profiler).

The minimum investment for KDI Invest is RM250 with the following charges:

KDI Invest pricing table

If you want to try out KDI Invest, you can invest RM3k and below for 0% fee. However, if you want to invest seriously with KDI Invest, make sure it is more than RM10k where it is the lowest fee compared to the other robo-advisors.

You may use my referral code 101220 where both of us will get RM10 in our portfolio when you invest RM250 and above in KDI Invest.

Comparison

All of the robo-advisors are quite similar where they use their own AI to create different portfolios for different risk profiles. And based on different situations, they will rebalance the portfolio. Let’s take a look at their differences:

  1. Formula and strategies to create the portfolio
  2. Management fee
  3. Shari’ah compliance for Wahed

For item 1, I will not go into the details as I believe each AI will have their pros and cons. As long as the AI helps us to make money, it is good.

In terms of charges, KDI Invest is the cheapest if you invest less then RM3k or invest more than RM10k. Any amount between RM3k-RM10k will be similar to Akru.

Next, if you are looking for Shari’ah compliance robo-advisor, Wahed is the only option for now.

Lastly, let us take a look at their performance. Based on the same month statement (Jan 2022) for a fair comparison, below is the percentage for each platform:

  • StashAway +0.1%
  • MYTHEO -2.52%
  • Wahed -6.82%
  • Akru -3.63%
  • KDI Invest -N/A

Although StashAway has the best performance, it can fluctuate each month. Therefore, it shall be taken with a pinch of salt.

Conclusion

Unless you are looking for Shari’ah compliance investment, the other platforms besides Wahed would be a better choice. This is because they have more ETF options to include in the portfolios. However, Akru does not have mobile app so that is one thing to take into consideration when you are choosing the robo-advisors. Lastly, in terms of management fee, KDI Invest offers the lowest among them all.

If you do not want to learn more on investments or handling the portfolio yourself, I would suggest to go for robo-advisors. However, if you want to achieve higher returns, property and stock markets are some of the vehicles that you can use.

In my next article, I will be sharing my knowledge on fundamental and technical analysis for stock market.

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