The “robo-advisor” space continues to gather steam, with Sydney-based BetaSmartz becoming the latest start-up to emerge from this exciting area of FinTech. Aimed at Australian investors, BetaSmartz’s technology utilises a wide universe of low-cost exchange-traded funds (ETFs) and actively managed funds to create portfolios that aim to equal the performance and sophistication of those in use at global fund managers, on a platform flexible, scalable and efficient enough to suit institutions, adviser groups and individuals.
John James, Founder and CEO of BetaSmartz.
John James, Founder and CEO of BetaSmartz, commented: “Robo-advice is a buzzword right now, but basically it’s the application of technology to what is otherwise a manual, inefficient process. Many firms are looking for a solution for their particular clients and BetaSmartz gives them a smart platform that can automate the production of sophisticated global portfolios for any investor. By applying the techniques of sophisticated global investors to a flexible technology platform we are democratising algorithmic investment.”
The popularity of robo-advisors has grown significantly in the last couple of years as investment firms attempt to meet the needs of increasingly tech-savvy private investors. Most of these services, however, use only a limited set of portfolios, with each representing a relatively broad change in its risk and return profile compared to the next. In comparison. BetaSmartz seeks to provide individual solutions based on the investor’s unique circumstances. Through the use of extensive research and sophisticated algorithms, the platform also aims to appeal as a lower-cost option for institutional investors.
“The difference is in the scalability and access – technology is at a point now where this level of sophistication should be available to everyone”, added James. “The basic aim of all investors is to protect and grow their investments. Our algorithms create goal-based portfolios based on investment size, time horizon and risk appetite. Whether the investor wants global exposure, currency hedging, tax optimisation or socially responsible portfolios, the algorithms adjust to suit their specifications while meeting that same basic desire for investment growth.”
The platform draws upon a wide range of ETFs which are screened on their liquidity and costs, favouring those with more attractive characteristics. The inclusion of actively-managed as well as values-based funds offer increased depth, risk management and flexibility.
The investment process begins with an analysis of the client’s investment goals, risk profile, time horizon, and various constraints such as liquidity. A core-satellite algorithm is applied which optimises the risk/return profile of a globally-diversified, passive, ETF-based ‘core’ while carefully selecting lowly correlated, actively-managed ‘satellites’ in a bid to further boost returns. The benefits of using ETFs as portfolio building blocks include lower costs, enhanced diversification, and potential tax benefits.
BetaSmartz will initially be rolled out to a number of Australian institutions and will be marketed as an effective white-label solution. “It solves the buy-vs-build conundrum for large institutions, and gives smaller ones the ability to offer world-class technology to clients under their own brand,” said James. “It’s very well suited to large super/pension funds, who can offer a much wider and more tailored range of portfolios to members at a lower cost, as well as to small investors.”