UOB Asset Management's corporate robo-advisory service, UOBAM Invest, is the product of a seamless melding of human intelligence and technological prowess. It leverages UOBAM's proprietary investment framework and methodology — honed over 30 years — to design customised portfolio solutions based on a business' specific investment objectives, duration and risk tolerance. It is able to quickly assemble a holistic view of all your corporate financial goals and then generate the success probability of your plan, providing insight on its viability.
Even though the legitimacy of robo-advisers as investing tools has been firmly established, with UOBAM Invest attracting over S$100 million in assets under management (AUM) since its launch, some still see them as inscrutable black boxes.
To shed some light on the topic, we go behind-the-scenes with Mr Dharmo Soejanto, Senior Director, Head of Investment Partnerships & Solutions, and Chief Investment Strategist of UOBAM Invest, to find out how UOBAM Invest works.
We also took the opportunity to get his views on the state of robo-investing, and convinced him to part with a couple of robo-investing tips too!
Q1. We see robo-investing entering the mainstream in Singapore. Despite the hype, many still find it difficult to understand. Can you explain robo-investing in the form of a simple analogy?
Imagine that you’re dining at your favourite restaurant, and are served by your personal waiter. Over time, he has developed a keen understanding of what you like or don’t like, and if you have any food allergies. At the snap of a finger, he is able to recommend the dishes that best suit your palette, consistently delivering a personal and unique dining experience. He even knows what special dishes to serve on special occasions. You know that you can trust him with your orders because he knows your palette well.
Robo-investing is like having a personal waiter at your favourite restaurant. The robo-adviser would first seek to understand your needs as best as it can. It will start by finding out about your financial goals - for example, if are you investing for retirement or your children’s education. It will then determine your risk appetite, such as how much volatility you are willing to accept for your portfolio. Finally, it will establish your investment timeframe - how long you intend to stay invested.
After understanding your requirements, the robo-adviser will then recommend a suitable investment portfolio of different asset classes. If you are a conservative investor, it might recommend more exposure to high-grade bonds for your portfolio, whereas if you need higher returns, it might allocate more exposure to growth equities. In time to come, you will trust the robo-adviser to manage your investment portfolio, and will have more time to focus on life’s other priorities.
Q2. Robo-investing is a combination of both algorithmic technology and human intelligence. How does UOBAM imbue its fund management expertise into UOBAM Invest? How exactly do the robo and human aspects interplay?
At UOBAM, we use our investment expertise honed over 30 years to select the appropriate asset classes, exchange traded funds (ETF) and unit trusts across a wide risk-return spectrum to put into UOBAM Invest. This, along with our research and data accumulated over the years, enables the algorithm to customise portfolio solutions for each client, with more nuances and greater diversification. For example, high-grade corporate bonds, high-yield bonds, global equities and Asian equities all have different risk-return characteristics, and can be blended in various ways to create portfolios for investors with different risk profiles and investment objectives.
In addition, we’re always committed to deliver the best investment products and services for our investors. This means that when you start investing with us now, you can be sure that we’ll be there to manage your investments at every step of your life journey.
Q3. Do you foresee that robo-investing will trigger a mindset shift amongst investors? For example, do you think that it would encourage more to switch to passive investing?
I think investors are generally moving away from buying stocks on their own in favour of looking for an investment outcome or solution. Robo-investing is designed to deliver that investment solution customised for each investor and does not necessarily encourage a switch to passive investing. Robo-investing incorporates methodologies including factor investing or a systematic or quantitative approach in managing funds (sometimes referred to as Smart Beta funds) which is basically an alternative approach to active investment.
Q4. In the future of financial services, is it only the human element from financial advisers that robo-investing cannot replace?
Technology will definitely play a greater role in this age but it has to be combined with the human touch to deliver quality products and solutions to our investors. This is what we believe in at UOBAM. The human element from a customer service perspective, for example, will still be important for us to engage our investors. Both people and technology are involved in our process of getting feedback and improving our products and solutions, including ways to improve our algorithm and investment approach.
We are constantly evaluating ways to effect these improvements. For example, can we incorporate tactical asset allocation switches as the economic cycle changes? Can we take crowd behaviour in the market into consideration and adjust the portfolios accordingly? Our overriding objective is always to ensure that UOBAM Invest remains relevant and responsive to the needs of our investors across different demographics or life cycles, and one way to ensure this is to engage people on the ground to learn about their requirements and pain points.
Q5. In your view, what is the biggest reason to use a robo-adviser for a corporate investor and a retail investor?
The biggest reason to use a robo-adviser for both a corporate and retail investor is that it offers a hassle-free yet low-cost investment solution. After a few questions, the robo-adviser will be able to know your investment objectives and design a customised portfolio for you. In addition, your portfolio will be automatically rebalanced for you over time as you draw closer to your objective, to reduce the risk of your portfolio and protect the investment gains that you have already achieved.
Q6. Any tips for companies that want to start robo-investing?
Companies that want to start robo-investing should consider a few things.
Firstly, they need to know their investment timeframe, that is, how long they can stay invested with a certain amount of funds without withdrawing it. The longer the investment timeframe, the greater the flexibility the robo-adviser would have in creating the portfolio, and the higher the potential returns. Conversely, a short investment timeframe would mean less tolerance for risk, and hence tends to restrict the portfolio to money market or short duration bond funds.
Secondly, they have to be very honest about their risk appetite and reaction towards volatility. This allows the robo-adviser to customise an investment portfolio that is suited to their risk profile. What we don’t want is for companies to end up with a riskier portfolio than what they are comfortable with when markets are volatile, or a portfolio that is too safe but does not generate enough return to achieve their investment objective.
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