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 3 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.

Comparison

Let’s take a look at the similarities between the 3 platforms:

  1. All 3 platforms have mobile apps with easy to use interface
  2. They all have options to choose and adjust your risk profile
  3. You can see the ETFs in your portfolio and the weightage

On the other hand, the 3 platforms have the following differences:

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

Based on the comparison above, if you have less than RM50k to invest, Wahed has the lowest fee. However, above RM50k, StashAway offers better fee.

Putting the management fee aside, let us take a look at their performance. Based on the same month statement for a fair comparison, below is the percentage for each platform:

  • StashAway +3.4%
  • MYTHEO +5.36%
  • Wahed -6.84%

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

Conclusion

If you are not looking at Shari’ah compliance investment, I would suggest to go for StashAway or MYTHEO. This is because they have more ETF options to include in the portfolios. Besides that, StashAway and MYTHEO explains in-depth on the method behind the investments. However, if fee is a concern, Wahed has the lowest fee among all if your investment is less than RM50k.

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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