Tag Archives: ETF

There are many transactions that you can do with your portfolio in T-Advisor

We have a very long experience providing financial tools for investors. That’s why we publish regularly posts about our solutions, because we have always detected that users do not take advantage of many gadgets, features and details developed for them to a better management of their portfolios.

Do you know what kind of financial transactions you can do in T-Advisor? Let’s say that you have your portfolio and you add some assets: either stocks, ETF or mutual funds. The usual operations are “buy” and “sell”. Those are easy, but there are quite a lot of them. Think about that:

  • If you have funds, you maybe think to transfer from one to another. There are transactions of buy and sell, but transferring the money, not a payment or refund with cash.
  • What about stock dividends or bond coupons? If you receive those payments, you have to register that increase of capital.
  • In the case of bonds, they can be cancelled or they can expire, with the subsequent effects in your portfolio.
  • Again, what refers to shares or ETF, there can also be splits and sold of rights.
  • However, there are also movements linked to cash, because a portfolio has an associated account. Let’s only think about the different charges that you can register. We show you in this list:

Cash operations in portfolios in T-Advisor

Not bad, huh? T-Advisor has several functionalities that deserve to speak with more details. These are some of them. An investor need a tool that has the right features to register all kind of movements related to his or her assets. This is the way to improve your independent wealth management. This is a reason why we say that we make available professional tools for self-directed investors.

Are there different kinds of ETFs or just one?

It is maybe the asset that has deeply changed the asset management in the last 10 years. ETFs are the great trend in investments and it has continuously grown since its launch in the 1990s. We have already described what they are, their characteristics and advantages, but it is time now to wonder: how many types of ETF are there in the market?

The main group is the traditional index-based ETF, focused in tracking specific assets (bonds, market indexes or even equities that pay dividends), countries, sectors or even styles (mid-cap, large-cap). They are the majority and the broadly known.

However, there are other kinds of ETF that are also interesting in order to learn about the variety that this recent asset has reached:

  • Actively managed ETF: The first reaction is: am I reading right? Yes, you are. They are actively managed to meet a particular investment goal. It can sound contradictory and they are really a little group. They try to sum the advantages of both ETF and mutual funds, but the disadvantages are that fees are higher than traditional ETF and the transparency is a middle point between ETF (the highest) and mutual funds (the lowest).
  • Inverse ETF: These ones use derivatives to go just in the opposite direction of the market. The question that emerges is: what if the market wins? Am I going to lose? No. Inverse ETF are design to invest in short-term to hedge longer investments or take advantage of negative markets.
  • Leveraged ETF: They use derivatives to get higher returns that the reference index obtains. They try to multiply the daily earnings, but in this case, if the index loses, you will also multiply your negative performance.
  • Commodity and currency ETF: They are focused on specific physical assets, but also in the futures markets. Metals, agriculture, energy, currencies… It is a way to diversify investments in these assets.
  • Innovative ETF: Imagination has no limits and ETF also shows it. In the long list of innovations in this asset, there are ETF of ETF, Volatility ETF or Tax-Deferred ETF, just to name a few of them.

This list attempts to classify the different types of ETF, but there will be surely more in the near future. The volume of managed wealth and inflows to this assets reached continuous records and we are sure that this will not be the last time that we will write about them.

The results of the T-Advisor model portfolios in 2016

T-Advisor, as wealth management solution for individuals and professionals, has not only tools for own investments, but also proposals to follow or even copy. That’s why our system has its own model portfolios. They are nine: five related to risk profile (from aggressive to very conservative) and five related to countries (Germany, UK, Spain in Europe and Mexico and Nasdaq 100 in the Americas).

How do they work? We select between four and six ETFs for the risk-profiled portfolios and up to ten stocks for the country portfolios. The main point for us is capital preservation. That’s why our results, when they are negative, are better than the markets. To obtain those results, we rebalance the portfolios every two months. These rebalances let us improve the results, as we exclude the positions more affected by market negative waves and substitute them for better stocks or ETFs. Diversification is also part of the strategy. We select the securities with the best score and relevant figures to obtain the best results.

These are the results for 2016 for our risk-profiled model portfolios:

1-Y-return 2016 1-Y-return 2015 Volatility Sharpe ratio
Aggressive

5.85%

-2.53%

12.51%

1.51

Dynamic

5.29%

1.47%

11.14%

1.52

Balanced

1.79%

3.53%

6.18%

1.42

Conservative

2.68%

1.52%

2.82%

1.35

Very conservative

0.90%

0.80%

2.07%

0.55

The figures were collected on January, 2nd, and we compare the results of 2015 and 2016. There is a general improvement (except the balanced strategy, although it is positive anyway). We have to remember that the year was quite unstable in the markets, as there have been several surprises that affected negatively. Despite this instability, none of our strategies closed with negative returns.

And now the results of our country portfolios:

1-Y-return 2016 1-Y-return 2015 Volatility Sharpe ratio Index
Germany

41.37%

44.70%

14.01%

6.98

6.87% (DAX)

Spain

1.31%

5.74%

16.17%

2.13

-2.01% (Ibex)

México

14.58%

23.96%

13.98%

5.61

+6.20% (IPC)

Nasdaq 100

24.68%

2.97%

9.58%

4.71

+7.50% (Nasdaq)

UK

9.03%

18.32%

15.99%

4.69

+14.43% (FTSE)

Except the UK portfolio, our strategies outperformed their benchmarks, but even the British one obtained a quite good return. The best performer was the German strategy again and the worst was the Spanish, but in this last case, the benchmark Ibex finished with a negative result.

Learn more about our portfolios and the assets included in our platform. Aren’t you tempted to clone them? We have a tool to let our users do it. Let’s try it and compare the results with your investments!

Active and passive management: an endless discussion

Passive management categories in T-Advisor

The boom of ETF in the investment landscape as a new kind of asset opened the endless discussion about active and passive management. First of all, what do we mean when we speak about both ideas?

Traditionally, the active approach means that a fund manager or a team design a specific fund or portfolio composed by a basket of assets. These assets are selected by the product profile (different kind of risk, asset categories or market). Then, the manager tries to beat a specific index or benchmark. The task is hard, because the manager has to deal with a lot of information related to companies, markets, policies and general trends. To attempt to outperform, the manager buys and sells regularly to improve the results.

On the contrary, the passive approach creates a portfolio or fund that copies the same structure as a specific index. That means that the result is narrowly linked with the index. Instead of outperform, the passive management obtains the same returns as the benchmark. The task of the manager is quite lighter, because he only adjusts the portfolio every certain time depending the changes in the index composition.

The question is: what is better? A usual pitch explained by passive management supporters is that active managers have a low rate of success outperforming the market, which is actually true, if we see some statistics. Usually, ETFs even beat the active manage funds. Other arguments are related to the costs: while passive management has low fees, active management costs quite more, because there is a human group behind the portfolio. Passive products are also easier to understand and agree the idea of diversification to reduce risks.

The current roboadvisor trend is based on ETF and passive management. However, it is reasonable to speak about different degrees of active management, as the financial adviser and blogger Cullen Roche proposed in his blog. Passive investing has a reduced degree of active management, but it is fair to say that the operational structure is quite lower as a traditional fund manager.

It is difficult today to defend active management, because they fail regularly in its aim of beating the market and the costs are higher. We don’t mean that it has to disappear, but it will surely evolve to a model in which technology will play a stronger role to reduce costs, so that traditional funds can compete again. Roboadvisor platforms can be a solution. The current movements in the markets are showing it, because great banks and managers are buying roboadvisors or developing their own algorithmic platforms.

Model portfolios, the fashion product in investments

Model portfolios in T-Advisor

Model portfolio is one of the main fashion concepts in investments. They are mentioned everywhere and the roboadvisor trend has underlined them as a standard solution to offer easy and cheaper investment products with interesting returns.

In T-Advisor, model portfolios are far from being something new. We saw it clear since the beginning three years ago. One of our modules is specific to provide two different kind of them: ETF portfolios divided in different risk profiles and share portfolios divided in different markets.

Our modeling strategy is based on quantitative calculations. These are complex mathematical models that help detect investment opportunities mixing several indicators, as historical returns, volatility, trend, alpha, VaR, correlations… the data cocktail depends on the developer and the strategist, who work together to find the appropriate composition of this data mix in order to obtain the most interesting assets and the best performance.

In our case, our model portfolios play with two criteria: best performance and capital preservation. We look for good returns to overperform the market, but we also reduce losses compared with the reference indexes in bearish periods. To keep these goals, we review every second month the model portfolios to rebalance the assets that are not working as we wish.

Model portfolios are easy for customers: the structure is clear, they are based on a disciplined strategy and changes are seldom, in order to make adjustments in certain periods. However, they are not easy products for the companies that offer them, because they need strong calculation systems, as we have developed in T-Advisor. In addition, we cannot say that the machine work alone, but wealth managers monitor also the process, creating the strategy and analyzing possible changes. Although model portfolios are linked to roboadvisor, they are not totally robotic and they are used by traditional investment houses.

Model portfolios are flexible, because the wealth manager can design them taking into account different diversification, risk, assets, currencies or geographical areas. They are also easy to explain to investors, because they look like bespoke boxes.

Take a look at one example in T-Advisor: our Mexico portfolio, composed by 10 local shares. The 1-year performance was 22.69%.

Mexico model portfolio in T-Advisor

The Mexican IPC index had a 1-year performance of… 0,46%.

Mexican IPC index performance

This is a clear example of how a model portfolio works. Individual investors choose them because they are easy to understand and wealth managers, because they are easy to explain. Communication plays a very important role in finance and easy products provide more trustworthiness.

ETF, the asset revolution has consolidated

Exchange Traded Funds, or ETF by its initials, are the trendy security in the last years. Their assets have doubled in the last five years, as this BlackRock chart shows, although there is a reduction in January 2016, because of the general volatility of the equity markets:

Global ETP assets by year. Source: BlackRock

ETF are there to stay. There will be no reversal. In this short history (although they exists since the end of the 1980’s), there have been a few entities that have specialised in creating and selling these products: iShares by BlackRock, Vanguard and State Street, as the following table shows:

Global ETP providers. Source: BlackRock

But why are ETFs so successful? Why is there an offer from a few to 1,800 different products in so short period of 10 years? Flexibility, low fees and trading like stocks are some of the advantages against traditional mutual funds. Although there are also some disadvantages, investors still look at them as a very attractive asset. The explosion of them as a business contributed to create a long list of specialised media in Internet, because professionals and individuals have been looking continuously for information about them.

The design of an ETF is very different depending the cases: equities, fixed income, money market, commodities… They replicate an index or track a collection of securities or sectors in the known as passive management. After creating the product, there are only some adjustments every certain period, but the product performs independently of the manager.

In T-Advisor, our Watchlist has a long list of ETF categorised by their strategy for our registered users:

T-Advisor ETF Watchlist

It is just an option, but it is interesting to consider because of its price transparency linked with diversification. You invest in a diversified product, that means that you reduce some risks, and you have steady information of the price fluctuation, against mutual funds, whose prices are updated when markets are closed. In costs, they are cheaper than mutual funds. Yes, they are more expensive that a share, but you have to consider the above-mentioned diversification.

This is probably the reason of the success: the combination of the flexibility and transparency of a share and the diversification of a mutual fund. A survey conducted by EY in 2014 already talked about the promising future of ETFs amongst wealth managers and invertors. That future is already here.

Roboadvisors: the word that is changing finances

Roboadvisors : T-Advisor mobile app picture

Roboadvisors or roboadvisers, with an O or with an E: the name began as derogatory, but it has been finally adopted by the different providers that operate in this field. This is the trendy word in financial technologies (or fintech, as it is also known).

The concept is simple: with the technological evolution, algorithms have been developed to create portfolios and manage them automatically or with a very low human intervention. Traditionally, a financial adviser has met the customer, listened their needs and creates a personal portfolio linked to a financial plan. In the case of roboadvisors, the customer register, fill in a investment risk profile questionnaire and the system proposes a model portfolio. This portfolio changes (what is known as rebalances), through algorithms, in order to improve the results when markets are negative. Easy: you invest and the machine works.

The immediate and clearer effect is about the price: fees are very low. Technology has opened a wide door for low-cost services with a very high quality and finances are not absent of this trend. Roboadvisors are the solution for little investors that have not enough funds to be worthwhile for advisers but look for better returns that traditional banking products, as deposits. In addition, investors feel the control of their investments, as they have a 24/7 platform with attractive web interfaces or mobile apps. The have also more advantages, as we have already explained.

Why are the fees so cheap?

  • The staff is very short.
  • The portfolios are composed by ETF, which are a kind of funds simple, transparent and with low fees.
  • The products are massive portfolios. There is no personal portfolio, as traditional advisers make, but one for different risk profiles.

The list of players is long and the assets under management (AuM) are growing quickly: an AT Kearney report mentioned that AuM managed by roboadvisors would reach $2.2 trillion in 2020. Currently, the largest roboadvisors manage $3 billion. That´s why the biggest players in the financial branch, that initially rejected them, are developing or event buying roboadvisors: Schwab and Vanguard have developed its own solutions, BlackRock and Invesco bought roboadvisor companies.

In the case of T-Advisor, there is a mixture of self-directed tools for investors that prefer to manage their full investments on their own and a model portfolio module as the existing portfolios in the roboadvisors. And all for free.

The map is changing: investors look for more technological, autonomous and cheaper solutions for them. Roboadvisors were criticised, because customer wouldn´t have anybody on the other side of the phone in the case of a crisis. We are living currently hard times in the markets. Let’s see what the financial landscape brings just at the end of the year: more or less roboadvisors? More or less AuM managed by them? Positive or negative returns for the customers?

China: economy and finances are still very connected

The Chinese economy is living an unstable situation after decades of continuous strong growth, with some years over 10%. Suddenly, there was an earthquake in August. Since then, the Chinese economy slowed its momentum depending on the world. This time all moved at the Chinese speed. The unexpected decision of the People’s Bank of China of devaluating the yuan three times in August was a shock in the world markets, as in the developed ones as in the emerging ones.

Evolution YTD of stock exchanges in China and others

The consequences were so strong, as we already explained in a former post, that the US Federal Reserve delayed its decision of hiking the interest rates due to the financial instability. What was at the beginning the end of the Chinese stock exchange bubble, it is now the start of a possible economic crisis: several figures are warning about the evolution of the second largest world economy. For instance, exports and imports go down, the inflation moderates and industrial prices slow down, the World Bank prospects for the next years speak about a deceleration (around 7% of GDP growth, when the figures were over 9%-10% in the last decade). As The Economist comments, China is a giant in trade and direct investment, but in finances and financial markets is still weak.  There is still a long pace till China will play a stronger role to substitute US as the first player. The immaturity of its financial markets is clearly showed in this chart:

Shanghai composite evolution in the last 5 years

This is the evolution of the Shanghai composite in the last 5 years. The evolution was weak between 2011 and 2013 linked to the global crisis, but suddenly a bubble was created this year and exploded violently. Chinese authorities reacted late and could not control the hard effects. The YTD gains around 40% till August are now around 1.8% (it was negative till the last week). The volatility is very high (38%) and trend is very bearish (-1.87%), as T-Advisor models show. However, investors who entered this market in October last year have registered 40% benefits.

What are the results of ETF linked to China? T-Advisor database show global negative results YTD, but most of them are improving its results in the last month:

Results of ETF in China

And the final question is: what will it happen in China? We have models, figures and charts, but no crystal ball, but we can say that it will depend on the evolution of the economy. It is still very linked to financial markets and the decisions of the government. In any case, let’s say welcome to China as very influential player in the world markets.

Stock exchanges: something is changing in the financial landscape

Have you ever thought about the evolution of the financial markets since the beginning of the century? If we take some figures, we can get some ideas about the deep changes in this landscape.

Let’s begin, say, for the global market capitalisation. If we take the figures from the World Federation of Exchanges, it multiplied 3.5 times from 2003, January, to 2015, May. That means, in dollars, from 20.3 trillion to 70 trillion. This evolution has taken place when the world experienced in the middle of this period the worst financial and economic crisis since the 1930’s. The most amazing evolution happened in Asia (more than 6 times, from 4.3 to 26.3 trillion).

The number of stock exchanges has also jumped from 44 to 73 markets around the world. This figure is interesting, because there were two trends in this timeframe: several mergers in the developed countries and new exchanges in emerging markets. In Asia, there have been five new markets created in these years, and 9 more in the Middle East.

Another data to take into account refer to the stock market ranking by market capitalisation. Although NYSE maintains the top 1 in the whole period, there are 4 markets from Asia in the top 10: Shanghai and Shenzen have joined the group formerly composed by Tokyo and Hong Kong. The capitalisation of both Chinese exchanges soared from 0.5 to 10 trillion in 12 years. There has been also a deep evolution in the Indian markets (from 0.2 to 3 trillion), although not so amazing as in China. This is the top 25 in 2003 and in 2015.

Ranking top 25 largest stock exchanges

Another interesting trend to get from the Stock Market statistics is related to the assets traded. Do you know how many ETFs were traded in 2003, January? Only 48 and almost the half were traded in Japan. And in 2015, May? 6,872 ETFs. In these years, Japan does not play almost any role and the kings in the ETF trading are NYSE, Deutsche Börse, Swiss Exchange, Euronext and Mexico, in descending order.

And finally, what is the asset that registered a fall in the listing? Yes, bonds. The number of listed bonds fell down a 37%, from 68,304 in 2005 to 43,043 in 2015. Korea and India are the main issuers, with more than the 50% of the listed bonds.

Regular news is sometimes a trouble to find the deep streams that are moving finances. There are relevant changes in regions and financial instruments. We are living an interesting period.

T-Advisor model portfolios: these are our results

T-Advisor, as wealth management solution for individuals and professionals, has not only tools for own investments, but also proposals to follow or even copy. That’s why our system has its own model portfolios. They are nine: five related to risk profile (from aggressive to very conservative) and four related to countries (Germany, UK, Spain and Nasdaq 100 from US).

How do they work? We select between four and six ETFs for the risk-profiled portfolios and up to ten stocks for the country portfolios. They are not static, but we rebalance them every two months. These rebalances let us improve the results, as we exclude the positions more affected by market negative waves and substitute them for better stocks or ETFs. Diversification is also part of the strategy. We select the securities with the best score and relevant figures to obtain the best results.

These are the results for 2014 for our risk-profiled model portfolios:

1-year-return

Volatility

Sharpe ratio

Aggressive

17.77%

10.94%

1.84

Dynamic

20.03%

9.91%

1.99

Balanced

19.50%

5.57%

2.84

Conservative

17.84%

2.06%

4.89

Very conservative

14.02%

0.62%

5.81

Who said that very conservative strategies have very low returns? And now the results of our country portfolios:

1-year-return

Volatility

Sharpe ratio

Index

Germany

20.84%

10.94%

1.84

2.65% (DAX)

Spain

9.31%

9.91%

1.99

3.66% (Ibex)

Nasdaq 100

1.91%

5.57%

2.84

18.8% (Nasdaq)

UK

-0.59%

2.06%

1.89

-2.71% (FTSE)

Our strategies outperformed the reference indexes (with the exception of Nasdaq 100), but even in a negative environment, as in UK, our portfolio reduced the losses.

Aren’t you tempted to clone them? We have a tool to let our users do it. Let’s try it and compare the results with your investments!