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More and more robo advisor have entered the Swiss market in recent years. The simplicity and low cost are very much in favor of using such a Algorithm controlled investment platform. But how does a Robo Advisor actually work?
Selma Finance gave us a look behind the scenes and answered many important questions.
In this article you will learn, for example, why with Selma Finance humans also regularly intervene in the algorithm. A central question was also whether Selma Finance could now be used as a active or passive investment style is to be considered.
At the end there is even a Tip for Robo Advisor investors, so stay tuned!
In the interview: Daniel Trum - Investment Manager at Selma Finance
If you have any more questions on the topic, we look forward to an exchange in the comments!
The investment approach of Selma Finance is based on a global market capitalization approachadjusted by the so-called value factor. In this process, favorable investment markets are determined on the basis of the Shiller PE Ratio read out and invested in them.
However, there is a second one, human component, which contributes to the Robo Advisor functionality of Selma Finance. The so-called Investment Committee meets regularly and can make adjustments if necessary. What happens then, however, is not an overruling of the consciously determined (rational) investment approach.
Rather, at best, pending Rebalancings triggered or also Additions to the investment approach added.
Actually yes.
But at the beginning of 2020, for example, the Investment Committee had identified a severe overvaluation of the markets and therefore brought in a precious metals feature at Selma. This Additional hedging in the portfolio has, in retrospect, proven to be very sensible and profitable.
In exceptional situations, the Robo Advisor algorithm can therefore also be adapted to the market situation.
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Selma Finance is based on a passive investment approach. However, in order to be flexible, there are active adjusting screws, as in the example of the precious metal function. However, it is not the goal to constantly intervene in the algorithm, since it impresses with its rationality and discipline.
In the Selma Finance algorithm are included at the latest every 3 months latest market data and information is fed in. In the event of major shifts in the stock market, this can also be ramped up to a few days.
What is clear, however, is that Selma Finance on long-term investment sets. Short-term shifts are therefore generally not relevant if the Investment target to 10 - 30 years is aligned.
With Selma Finance can theoretically each portfolio different look
So if 10,000 people create an account with us, answer the questions and start investing, theoretically 10,000 completely different portfolios can be created.
A good robo advisor asks many questions and uses the information gained to design a Individual Robo Advisor Portfolios. Therefore, there is no such thing as a typical composition.
Since every portfolio looks different, it is not possible to speak of a typical return. After all, not every investor has return as a prioritized goal.
The Risk management is at least as important to us as the return. It is of little use to customers if attempts are made to achieve even 1% more return, but in return far too much risk is taken. The focus is on the secure, long-term asset accumulation.
Pooling is not operated at Selma Finance, as a separate securities account is created for each customer. This has enormous advantages in terms of security and is taken into account by us but also in terms of frequency when trading.
After all, smaller depots do not have the same Trading fees more strongly into the weight. Therefore, we try to avoid unnecessarily frequent action.
A Hedging the currency risk to the Swiss franc is not pursued. Selma Finance invests as broadly as possible, i.e. worldwide and in a wide range of currencies.
So-called Hedging (hedging of the Swiss franc exchange rate against a foreign currency) is not operated, with the exception of a single bond product where hedging is already built in.
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Background: In the case of a Flash Crash one negative news item triggers another and leads to a sharp crash within a short period of time.
Nothe Selma algorithm would not Flash Crash can trigger. It is on long-term wealth accumulation and does not focus on short-term momentum.
So if stock prices were going down and the "whole world" was invested with Selma Finance, investors would be more likely to buy up and take advantage of the favorable prices.
The advantage of Selma is that a portfolio can be tailored to your personal circumstances is designed.
With a very long investment horizon and a high tolerance for risk, still no 100% stock portfolio be found. Fluctuations should always also be reduced, which is why in such a case probably still about 10% low-risk assets are mixed.
Furthermore, care is taken to always provide a Minimum number of titles to hold. Even with such a risk-averse client, there are still about 10 stocks in the portfolio.
Since a robo advisor is effectively the cheaper and more rational form of a human investment advisor is also a Robo Advisor Algorithm depend on information.
Your income has changed? You suddenly have more expenses or want to buy a home, for example? Share such information regularly with your Robo Advisor Algorithm with. The more Selma Finance knows about you, the more secure and successful your wealth accumulation will be. And if you have any questions, one of our human employees can advise you personally.
Pro tip from Schwiizerfranke: Create an annual "Robo Advisor talk" appointment in your calendar. This will remind you to log in to your Robo Advisor at least once a year and share any changes in your life.
(Since Robo Advisors are very convenient and take a lot of work off your hands, experience shows that some investors forget this).
2 Responses
Thanks for the good post, great as always !!!!
The question I have with robo advisorns is the cost with a portfolio of CHF 100,000 or more.
Suddenly they're not so cheap anymore, are they ? Is it still worth it or are there better options?
Hello Mile 🙂
thank you for your good feedback!
Some robos are also becoming cheap again for large deposits. Selma is also lowering the fees gradually.
If we consider only the costs (one should not), there are also even cheaper options especially for large assets.
Those who want to optimize the costs and take on the effort for the investments themselves can of course do so.
Ideally, however, you will have already gained your own investment experience before simply taking the 100,000 francs out of the robo and investing them on your own ... 🙂