Exo Investing Makes Automated Multi-Asset Investing Easy
Money management is a great industry for the people who invest other people’s money. For most of the 20th century people trusted money managers and professional financial advisers to look after their investments. Unfortunately for money managers, there is a convincing body of research that suggests their profession isn’t especially beneficial for the people that trust them to invest on their behalf.
In the world of equities, it is extremely rare for a equity fund manager to outperform the broad indices (like the FTSE100). When a manager outperforms the index for a year or two, there is little chance that they will be able to continue to do so for any amount of time.
Economist Burton Malkiel’s book, “A Random Walk Down Wall Street”, expanded on the idea that paying for investment management isn’t a smart move. According to the now-famous investment guru, the best way to stay on top of the market is to buy a diverse mix of stocks or funds, and pay as little as possible in management fees.
Today, taking a ‘Malkiel’ approach to equity investment is easy. There are hundreds of Exchange Traded Funds (ETFs) that offer rock-bottom management fees, and allow investors to buy into numerous markets across the planet. When it comes to more complex asset allocation across multiple asset classes, things get much more complex.
The Rise of Robo-Advisors
It would be impossible to use low-cost funds to replace the work of an investment adviser that can manage a portfolio across multiple asset classes. Most people want to gain access to some amount of risk in the equity market, while earning low-risk income from bonds.
Enter Robo-Advisers, which can use varying strategies to balance a person’s investment capital across numerous assets, without the direct involvement of a human money manager. The net result of this new form of money management platform is fees that drop to 1% of assets under management on an annual basis, or less in some cases.
With fees that are less than 1% of assets annually, Robo-Adviser costs are on par with low-cost ETF management fees. Needless to say, these new forms of asset management have been getting a lot of attention. There are a lot of options out there in the world of automated investment, so digging into the details is a good idea before throwing money at a new platform.
Is a Robo-Advisor Better Than A Human?
When it comes to costs, there is no comparison between robo-advisers and human ones. The average rate for a human financial adviser in the UK is about £150 an hour, and they may also ask for a monthly payment, or a percentage of your portfolio’s annual gains.
The standard in the hedge fund industry is 2 and 20. That is 2% of (your) assets under management, and 20% of the gains, annually. Unless you are sitting on a portfolio that is worth more than £100,000, a human is probably going to cost a lot more than a robo-adviser.
The argument for humans is that they won’t pigeon-hole investors into a ready-made portfolio that is assigned based on risk tolerance, which is a valid point. On the flip side, human money managers aren’t necessarily going to deliver amazing performance.
If a money manager was truly gifted, they would probably be working for a multinational bank in the City of London, not doing piecemeal work for private clients. Some advisers are also out to make a sale, which means that your financial needs are taking a back seat to their potential to gain from selling you an investment.
Exo Investing is a new idea in the world of robo-advisers. It has one of the biggest names in banking behind it, as well as a top-level algo driven investment firm with a long track record.
What is Exo Investing?
Exo Investing is a new asset management platform. It was launched last May, and has some very interesting connections. The platform is basically a collaboration between ETS Asset Management Factory, and the Rothschild banking family. Pretty much anyone will know about the Rothschild banking dynasty, but ETS could be something of a mystery to retail investors.
ETS is based in Madrid, and has been building portfolios for wealthy individuals and institutions for more than 30 years. It offers a tremendous amount of real-world experience to the new platform. ETS puts a high value on Artificial Intelligence (AI) or Machine Learning (ML) (depending on how you want to define either term), and has a long track record to demonstrate the viability of its investment methodology.
ETS is one of the largest quantitative asset managers in Europe, which has given them an easily marketable product to put at the disposal of the consumer investment market. Clearly, the Rothschild’s also have a lot to bring to the table, and their entrance into the automated investment market is something of an endorsement for the space as a whole.
What Does Exo Investing Do?
Exo Investing isn’t a one-stop-AI-shop for your money.
Lennart Asshoff, the CEO of Exo Investing, said that, “Robo-advisers use a system of automated investment management and a set of predefined portfolios, each designed to match a given level of investor risk appetite,” in an interview given in 2017.
Mr. Asshoff gives a good overview of what separates his company from other ‘robo-advisers’ in this short video. Basically, Exo Investing allows their clients to take advantage of an extensive number of assets that will be automatically added or removed from their personal portfolio, instead of just being assigned a ready-made portfolio based on their risk preferences.
You may have noticed that the prior paragraph says that Exo Investing allows their clients to enter and exit investments without additional cost, which is a big deal.
Delivering multi-asset investment management with fees at or under under 1% is one thing, but doing it without any additional cost associated with portfolio rebalancing is something else. Aside from the flat 0.25% annually to cover ETF fees, there are no other charges to enter or exit ETFs with Exo Investing.
More on that in a minute.
In short, Exo Investing allows retail investors to leverage an AI/ML-based investment platform that has decades of refinement, at rates that were unheard of a few years ago. The company sets itself apart from the competition by giving its clients a tremendous amount of flexibility in how their capital is invested while ensuring there is robust risk management in place to ensure your portfolio remains on track to reach your goal.
Robo-Advisers Could Be The Future of Money Management
Let’s be real, it has gotten a lot easier to manage money over the last 20 years.
ETFs have made it simple to gain broad exposure to markets, at very low costs. In many ways, the kind of algos that ETS uses to manage money for its high-net worth clients have come to dominate the largest markets on earth. Last year saw some of the biggest hedge fund managers throw in the towel, because they can’t compete with the algos.
Last year an equity quant fund which was created and is managed by Renaissance Technologies managed to return 8.5% on the year, while a fund managed by David Einhorn lost more than 30%.
Einhorn said this after last year’s terrible returns were announced, “Yes, we have made some obvious mistakes…the worst of which was not assessing that SunEdison was a fraud in 2015…but there have been others. A number of years ago one of our investors said Amazon would surpass Apple and become the most valuable company in the world. We didn’t get it then and, truthfully, we don’t really get it now.”
David Einhorn is a top-level hedge fund manager who is responsible for investing billions of dollars. The sad fact is that most people can’t afford to hire a fund manager, and when looking at the returns, maybe they shouldn’t – a robo-advisor is cheaper and can make decisions unclouded by human emotions.
Clearly, not all robo-advisers are created equal. It is worth reading into how an automated investment platform functions, and what is included at their base level of service. In most cases, a robo-adviser will supply a client with a ready-made portfolio based on their risk tolerance, and if they want more advice, they have to pay for a human adviser/portfolio manager.
Exo Investing seems to distance itself from the rest of the automated advisory platforms in this regard. There is no upgrade available on their platform, because it is an algo-driven investment service. This may or may not be a good fit for your investment goals, but it is a remarkable piece of technology to have access to on a retail basis.
Opening An Account With Exo Investing
Opening an account with Exo Investing isn’t a difficult process. After you enter all your personal information, you will be asked a series of questions to assess the level of risk for your portfolio. This is where ETS’s decades of experience really come into play.
Many investors think they want either a high or low risk portfolio, but Exo has gotten pretty good at using simple questions to drill-down to a client’s actual risk preferences. Exo will also ask about how long you could survive on your cash reserves, how much investing experience you have and your time horizon.
There are simple visual graphs that illustrate risk/reward scenarios. It is helpful to see these idea in graphic form, as many people can misunderstand the amount of risk they are taking on for a given level of return. There is no way to know for sure whether or not a specific scenario will play out, but Exo’s algos have been back tested against real scenarios and every portfolio suggestion is also checked against a rigorous and random scenario generator.
Once you complete the questions, Exo will assign you a risk level (between 1-10), and you can proceed to choosing the kind of account you want to open. For the moment Exo offers a Stocks and Shares ISA, or a General Investment account, though they are on-track to offer a Pension account in the near future.
The last thing you have the option to do is choose from over 25 different options and pick 12 in total between different styles, sector and regions of investments.
The algos will suggest assets that are a good fit for an investors profile and you can have some influence where you funds are invested via your set preferences.
Exo also offers prospective clients (or anyone, really) a free service that will recommend investments, which is worth taking advantage of regardless of your desire to use Exo’s platform. If you want to see what Exo thinks of your portfolio, or whether or not their algos think it matches with your risk tolerances, it could be worth exploring their platform at no cost.
Choosing The Right Account
Exo Investing offers two kinds of accounts currently. Depending on how you plan to invest, and how long you have been saving, one of the two types will probably make more sense for you.
Like many robo-advisers, Exo offers an ISA account, which is a great way to get ahead. The UK government is incentivizing investing with some pretty sweet tax breaks, and it makes sense to take advantage of these programs while they last.
Stocks and Shares ISA Account
The Individual Savings Account is a great program that the UK government created to help people save and invest tax-free. Presently, anyone in the UK can invest £20,000 per year without paying any taxes (at least for now).
Exo Investing requires a minimum investment of £5,000 to open a Stocks and Shares ISA, and until it is funded at the £100,000, you will pay 0.75% annually for the account. Once your account hits the £100,000 level, the fees drop to 0.50% per year, which seems like a screaming deal on some high tech investment advice. Investors are also charged an average of 0.25% annually (dependent on asset allocation) to cover ETF fees.
You will be able to keep an eye on how Exo is investing your money 24/7, and make any changes you want. There is zero cost (fees or capital gains) to you for rebalancing your portfolio, and it can be done at any time.
Like any ISA, you can keep topping up your account every year, at least until the laws change. If you have some extra income you don’t know what to do with, an ISA is probably a better bet than a flash new car.
Read more about Stocks & Shares ISAs here in our guide.
General Investment Account
Exo Investing’s General Investment Account (GIA) offers investors access to more than 500 ETFs, across a broad spectrum of assets and markets.
The GIA gives investors the same access to Exo’s AI algos, with zero additional cost to buy and sell funds. The fee structure is the same in both account types, and anyone who has £100,000 or more invested in their account will get Exo’s services for 0.5% per year, with no additional fees whatsoever.
The GIA also gives you access to Exo’s suite of analytical tools, and you can keep track of your portfolio’s performance whenever you want. Assets in the GIA aren’t limited to stocks and shares. Capital in a GIA can be invested in debt funds as well, across numerous geographic locations.
Putting Money Into Action With Exo Investing
When it comes to actually putting your money into the market, Exo’s platform begins to distance itself from other robo-advisers. Exo’s AI algos will generate a list of potential funds for your portfolio, or, it will give you a list of asset classes and funds that fit your investment goals.
With Exo, no two client portfolios are likely to be the same.
Exo provides a prediction tool which will allow you play around with your risk settings, time horizon, investment amounts, regular deposits and other preferences to give you an idea of how the portfolio will perform over time.
At this point, you are basically done with the set-up.
If you like the way your portfolio looks, you can choose to fund it. If you want to make changes to risk level, focus areas and time horizon you can also do so. Once your portfolio is funded, you will be able to keep an eye on it with the same analytical tools, as well as monitor how the algo shifts your investments to keep on top of the market.
How Does The Platform Work In Real Life?
Exo Investing is built to be almost totally automated. Other robo-advisers use teams of people to keep track of the portfolios, but Exo’s platform is almost completely run by algorithms.
Instead of using one algo to do all the work, Exo created different algos to monitor the markets, and keep track of portfolio allocations. Some of their algos use rotation analysis to examine market direction and tweak portfolio allocations based on risk and the price of an asset. Other Exo algos run through every ETF that is listed on the London Stock Exchange (LSE) and take into account the volatility, price, index, tracking error and return.
Exo’s algos are also ‘gaming’ different market scenarios for your portfolio on a dynamic basis. In simple terms, your Exo portfolio is being put through numerous tests based on real and randomised current market conditions all the time, and potential adjustments are considered.
Any reallocations will be made at zero cost, as they are covered by the 0.25% (on average) annual fee that investors pay for ETF costs. The ability to dynamically adjust your portfolio, either manually or automatically, is a massive advantage over just about any other platform out there. ISA account holders have even more leeway, as they won’t be taxed on their gains during a reallocation.
Exo’s Amazing Metrics
Exo Investing isn’t a black-box algo that gives you a daily change in value, with little in the way of ancillary information. If anything, the platform gives investors loads of information on where the algos decided to put capital, and when changes were made.
The platform gives you a detailed chart which shows where your money was invested on a daily basis. You can see where your money started off, and how it changed in both allocation and value over time. At any time you can amend your preferences, time horizon, risk etc, check how the new portfolio would look, and then save it – and this will all be reflected the next trading day.
Exo Investing Looks Like A New Idea
It is easy to lump Exo Investing in with other robo-advisers like Moneyfarm or Nutmeg, but in truth, they are bringing a new kind of investment platform to the public. Established robo-advisers use a multi-level system which gives clients more access to human managers as they pay more.
Exo Investing breaks from that mold, as they have a strong background in algorithmic modeling to draw on. The only price break that can be had at Exo is when you clear the £100,000 threshold, and your annual fee drops from 0.75% to 0.50%. Other than that, every client gets the same access to advanced algos which are designed by a team with decades of proven performance, and all the other tools that Exo gives its clients.
Algorithmic trading has been on the rise globally. It is estimated that 60% or more of the volume on the New York Stock Exchange (NYSE) is controlled by some form of automated trading. There are many ‘bots’ out there for investors and speculators to choose from, but few have the experience that ETS brings to the equation.
Another major difference that Exo Investing offers its clients is the total lack of trading fees.
An algo or investment manager may have a great idea for a portfolio rebalancing, but shifting money in and out of numerous funds will get expensive. Exo has minimized this drawback, as investors pay a 0.75% management fee (0.5% when over £100k) and 0.25% on average to cover ETF fees, which makes its platform look like a very new idea in the money management industry.
Is Your Money Safe With Exo?
Exo Investing Ltd is regulated by the Financial Conduct Authority (FCA) in the UK. All client money and assets are held by Exo’s custodian bank, Winterflood Business Services, which is also regulated by the FCA.
Winterflood is a member of the Financial Services Compensation Scheme. In the case of insolvency for either Winterflood or Exo Investing, client losses would be covered up to £50,000. Basically, from the standpoint of security, Exo is on par with just about any other investment platform out there.
Who is Exo Investing Made For?
There is no doubt that Exo Investing is giving retail investors access to some incredible tools. Exo is perfect for someone who has saved up some money, and wants diverse investments across a number of different asset classes. Exo’s platform makes rebalancing a portfolio easy, and with a flat fee to cover ETF charges, there is no reason to hold onto a position because of trading costs.
One of the most interesting parts of Exo’s platform is the amount of control that it gives investors.
Exo will allow you to alter your preferences around your portfolio which gives you more control than other robo-advisors of this type.
Conversely, Exo also appears to be a great choice for people who want to have an automated investment strategy. Exo’s platform has a full auto mode, which lets investors go along with Exo’s algos. Clients can always use Exo’s metrics to keep an eye on how the algos are investing their money, and how the strategy is performing.
Exo Investing’s minimum amount to open an account is £5,000, which isn’t bad for investors who already have money in the market. Exo is a good option for people who want to try out an automated investment platform, but don’t want to be stuck with prepacked portfolios. The fees are very low, and are on par with most ETF’s which offer little in the way of dynamic adjustment to your investing goals, or market conditions.
Among all the robo-advisers, Exo probably offers the most novel technology to date. For investors who want to try out an algo-driven investment approach, and don’t mind the £5,000 minimum investment, Exo is a compelling opportunity.
The Issues With Exo
Probably the biggest problem with Exo is their lack of a track record. Exo has only been around since last year, and that may put some people off. Exo also may not be the perfect choice for younger investors who don’t have a spare £5,000 to open up an investment account.
Other investment advisory platforms like Nutmeg have a much lower barrier to entry, at just £500 to get started. Nutmeg requires users to put £100 per month into their ISA, which isn’t a bad move for people who only have £500 to open up an account.
There aren’t many drawbacks to Exo’s platform or interface, but it is clearly aimed at tech savvy investors who don’t mind the lack of a human touch. For those that are wary of their newness, there is nothing wrong with giving them a few years to prove themselves before taking the plunge, or for wealthier people, investing the minimum and seeing how it goes.
Exo Investing Offers Their Clients:
- Cutting Edge Algo-Driven Investment Management
- Low Fees (Under 1% p.a. All Inclusive, Drops to 0.75% When £100,000 is Invested)
- Access to Hundreds of ETFs
- ISA Investment Option
- No Additional Fees to Buy and Sell Assets (Flat of approximately 0.25% p.a. Covers All ETF Fees)
- Backed By The Rothschilds and ETS
- Lots of Information/Graphics/Metrics
Exo Investing is being lumped-in with other robo-advisers, and that might not be entirely accurate. ETS has a lot of experience creating algos to manage investments for the wealthy, and their participation in Exo is worth paying attention to. In some ways Exo appears to be more of a data-driven quant, with a financial planning wrapper.
The rise of ETFs has given Exo (among others) the ability to reach hundreds of sectors, with a highly diversified approach to individual holdings. The fees to own and trade funds are approximately 0.25% (it varies for each ETF provider) per year, which makes Exo’s platform appealing to numerous classes of investors.
If a person wants to trade their portfolio actively, Exo is a near-perfect solution. For investors that want to take full advantage of Exo’s algos, the flat rate ETF fee allows the algo to rebalance without any worries about fees impacting the algos investment strategy.
The ability for investors to tailor their portfolio to their preferences is another big selling point for Exo’s platform. As long as a person is happy being in the ETF universe, Exo’s platform gives them a huge amount of selection. The only real drawback for Exo is their track record, or more precisely, their complete lack of one.
Given the fact Exo is regulated by the FCA, and investors are covered by the UK’s Financial Services Compensation Scheme, there is no reason to avoid Exo based on fears surrounding the safety of investor capital. All in all, Exo is an amazing new investment tool.