Robo-advisor Scalable Capital Whitepaper

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vanrico
Posts: 24
Joined: Tue Sep 18, 2018 8:42 pm

Robo-advisor Scalable Capital Whitepaper

Post by vanrico » Wed Sep 19, 2018 9:57 am

Hi all,

I'm wondering if anyone else read the Scalable Capital whitepaper?

There are some really interesting points IMO (especially because the marketing BS from the US robo-advisors annoys me; "Nobel-price winning technology" as if anyone is not starting with Markowitz):
  • Value-at-Risk as a better measure of risk (compared to volatility/std.dev.)
  • Asymmetric correlations and portfolio tail risk
  • An individual investor optimisation problem

The details of how it all works seem a bit skimpy, but this is where you have expertise that I don't have and see more perhaps.

There's another thread on them talking about fees: they charge 0.99% p.a. In their conversation with me, see below, they say that the European robo-market is less competitive than the US and has higher fees (and I sort of believe it).

Let me know what you think re the whitepaper!

- Nutmeg's passive portfolios are a fixed allocation (there is no active management), so for a £30k portfolio 0.45% + 0.21% (underlying ETF costs) + 0.09% (average effect of market spread) = 0.75% in total, which could be considered expensive when comparing against a service that actively manages the portfolio (for reference https://www.nutmeg.com/our-fee). Generally though, these fees/services shouldn't be compared with one another as a fixed allocation proposition is a different offering to a managed portfolio.

- Similarly, with Wealthsimple, the headline figure of 0.7% does not include the 0.2% they quote for the underlying ETF costs (see FAQ https://www.wealthsimple.com/en-gb/details) and when you also include the average effect of market spread throughout the course of a year, the total costs are very similar (Scalable includes the underlying ETF costs and market spread in our quoted headline figure).

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Rick Ferri
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Location: Georgetown, TX. Twitter: @Rick_Ferri
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Re: Robo-advisor Scalable Capital Whitepaper

Post by Rick Ferri » Wed Sep 19, 2018 10:07 am

I have difficulty when a company claims they will do something they cannot do:

Strongly believing that the creation of wealth is best accomplished by not losing any in the first place, [name of company]'s asset allocation algorithm focuses on downside risk protection. Once the investor’s optimal portfolio is invested, [name of company] will continually monitor and project its development and assess whether it is on track or not.

For a company to infer in marketing material that they know what optimal or that they will not lose money is a breach of their fiduciary duty if not an outright lie. There is no way of knowing what the optimal asset allocation of a portfolio will be going forward, and even if it is close, there is no way to guarantee "not losing any [money] in the first place."

The optimal allocation can only be known in retrospect, and no investment strategy with any degree of risk is guaranteed to always earn money.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

Valuethinker
Posts: 36614
Joined: Fri May 11, 2007 11:07 am

Re: Robo-advisor Scalable Capital Whitepaper

Post by Valuethinker » Thu Sep 20, 2018 9:56 am

vanrico wrote:
Wed Sep 19, 2018 9:57 am
Hi all,

I'm wondering if anyone else read the Scalable Capital whitepaper?

There are some really interesting points IMO (especially because the marketing BS from the US robo-advisors annoys me; "Nobel-price winning technology" as if anyone is not starting with Markowitz):
  • Value-at-Risk as a better measure of risk (compared to volatility/std.dev.)
  • Asymmetric correlations and portfolio tail risk
  • An individual investor optimisation problem

The details of how it all works seem a bit skimpy, but this is where you have expertise that I don't have and see more perhaps.

There's another thread on them talking about fees: they charge 0.99% p.a. In their conversation with me, see below, they say that the European robo-market is less competitive than the US and has higher fees (and I sort of believe it).

Let me know what you think re the whitepaper!

- Nutmeg's passive portfolios are a fixed allocation (there is no active management), so for a £30k portfolio 0.45% + 0.21% (underlying ETF costs) + 0.09% (average effect of market spread) = 0.75% in total, which could be considered expensive when comparing against a service that actively manages the portfolio (for reference https://www.nutmeg.com/our-fee). Generally though, these fees/services shouldn't be compared with one another as a fixed allocation proposition is a different offering to a managed portfolio.

- Similarly, with Wealthsimple, the headline figure of 0.7% does not include the 0.2% they quote for the underlying ETF costs (see FAQ https://www.wealthsimple.com/en-gb/details) and when you also include the average effect of market spread throughout the course of a year, the total costs are very similar (Scalable includes the underlying ETF costs and market spread in our quoted headline figure).
They are sharp people.

It makes sense in a non US financial planning context (they are City of London based).

vanrico
Posts: 24
Joined: Tue Sep 18, 2018 8:42 pm

Re: Robo-advisor Scalable Capital Whitepaper

Post by vanrico » Thu Sep 20, 2018 11:21 am

Valuethinker wrote:
Thu Sep 20, 2018 9:56 am
It makes sense in a non US financial planning context (they are City of London based).
Sorry, when you say "makes sense" what do you refer to?

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