Can the robo-advisors manage drawdowns
EVERGREEN - test and experience
“Plan, invest and save with just a few clicks” - that is the slogan that the new Robo Advisor Evergreen has written on the flags. In the interview, we clarified what the software for automatic investment from Leipzig is about and also how the corona crisis went for EVERGREEN.
How did EVERGREEN fare in comparison to other robo-advisors in the corona crisis?
Compared to robo-advisors, Evergreen is an asset manager and manages the asset allocation (share and bond ratios) dynamically on a daily basis. This becomes visible in the example of our dynamic strategy “Evergreen PDI Yang”. While the equity quota was still 82% at the end of January, we have reduced it in several steps to 18%, thus protecting our investors from major damage.
The maximum drawdown on a daily basis was -13.2%. We used the market recovery to rebuild the equity allocation to the current level of 54%. Chart 1 shows the drawdown of our dynamic strategy during the corona pandemic. Chart 2 shows the equity allocation over time. As of July 16, 2020, our dynamic strategy for the year is still -0.98% in the red, after deducting all costs. Our conservative “Yin” strategy is already back in positive territory at + 0.14% for the year, also after deducting all costs.
Chart 1: Drawdown Evergreen dynamic strategy "Evergreen PDI Yang"
Chart 2: Equity allocation Evergreen dynamic strategy "Evergreen PDI Yang"
There are already over 30 robo-advisors on the market. Why has the market been waiting for evergreen?
Evergreen is an active risk manager for private investors and has its roots in institutional asset management and risk overall for insurance companies, pension funds, companies and foundations. Our main motivation is what is known as “customer centric asset management”, i.e. customer-oriented asset management and not the sale of static ETF portfolios. With our dynamic asset allocation, we manage the capital market risks for our investors. Our investors do not buy static ETF risk but dynamic risk management. The dynamics of our risk management can be understood here on the same day for everyone:
In addition, we completely waive service fees, custody fees and transaction costs. The minimum investment is EUR 1.00 and each investor can use our "pockets" to save their savings goals with different risk / return requirements:
The market needs evergreen, because investing is associated with risks and these risks have to be managed professionally. We call this "Subscription to Risk Management".
Some investors wonder whether an ETF savings plan is not just as good, but more profitable because it involves fewer fees. How do you convince these investors?
I totally agree. The concept of robo-advisor, which raises the fee-saving model “ETF” with service and custody fees back to the cost level of actively managed funds, is completely absurd. Personally, I don't see any added value in the current concept of a robo-advisor. You can easily put together an ETF portfolio yourself, there are enough instructions for this and completely free of charge. To charge an annual service fee for this, which is sometimes 3 to 4 times the ETFs, is big nonsense. The low assets under management at the Robos on the one hand and the steadily increasing volumes in the ETF savings plans clearly demonstrate this. I dare to say that the “robo-advisor” model as it exists today, namely without real added value for the investor, can no longer exist for long.
Anyone who manages without risk management because their investment horizon is 20 years or more is best served with an ETF savings plan.
What is your assessment of the crisis. Is the stock market crisis over?
As a professional asset manager with 20 years of experience, there is only one answer: Nobody can know. Forecasts are fraught with uncertainty, especially when they are directed towards the future. Anyone who claims otherwise is not acting professionally in my opinion. That is why we at Evergreen rely exclusively on forecast-free, systematic investment concepts.
How many customers and invested funds does Evergreen already have?
We went live with our offer in February 2020 and are managing 11,615,270 euros as of July 16, 2020.
Explain your investment mechanism to our interested investors. What distinguishes him?
The investment mechanism we have implemented is “passive, dynamic investing” for short PDI.
In one sentence: PDI is a synthetic option strategy that replicates the payout profile of a multidimensional collar structure.
It is a highly developed capital preservation strategy which precisely quantifies the fluctuation risk of our investors and controls it without forecasting by means of dynamic asset allocation, i.e. daily adjustment of the investment structure. “Passive” because we forego the “active” selection of individual stocks and map our global investment universe cost-effectively using futures (not ETFs!). “Dynamic” because we adjust the share, bond and cash quotas in our investor portfolios indirectly via the asset allocation of our funds on a daily basis.
The mechanism is characterized by dynamic portfolio management, i.e. the significant reduction of risks in crisis phases and forecast-free participation in a positive market environment. Other providers also have approaches to forecast-free dynamics, but experience over the past few months has shown that these approaches are academically partially obsolete and have only been implemented half-heartedly. In a portfolio consisting of ETFs, optimizing the investment ratios on a daily basis is virtually impossible for reasons of cost. This is where we benefit from our many years of experience as a quantitative capital preservation manager.
Somewhat more precisely, for those who are interested:
The basis of the investment approach is a globally diversified future portfolio, with which one participates in market movements in global equity and bond markets. The advantage of using futures compared to other financial instruments lies in their low cost structure, their high liquidity and their leverage.
To secure the value of this portfolio, a collar option structure is then defined, which consists of a protective put and a long call. Such a collar option structure forms a lower limit and an upper limit for the price development of the underlying financial instrument. This collar option structure is implemented in the form of a synthetic multi-asset option.
A multi-asset option is an option that is based on several financial instruments; this is more cost-effective in a portfolio than options for all individual financial instruments and allows correlation effects between the individual financial instruments to be mapped. This option is implemented synthetically, i.e. no physical option is entered into, but the payment profile of the option is replicated in the portfolio.
The last component of safeguarding value is time diversification. Instead of a multi-asset option with a longer term, a rolling staggering of short-term multi-asset options is created in order to ensure a high level of dynamism in the capitalization strategy. The implementation of time diversification takes place synthetically, analogously to the implementation of a single option.
For experts who are even more interested in the approach, we have explained the concept of dynamic asset allocation in detail on the podcast channel "The Wall Street Lab":
What are you planning for the next few months - what innovations can we expect from you?
We have just taken our pockets, which are unlimited virtual sub-custody accounts with an individual risk / return profile, online. In addition, our expert analysis with real-time allocation is now available to our investors.
We will activate the following additional features this year:
- Virtual depots, in order to be able to track the asset allocation and value development of virtual pockets without registration
- Evergreen for capital-building services in the "VL Pocket"
- Children's depots
- maximum drawdown for each single pocket
- rolling volatility
- Performance attibution, i.e. the breakdown of the performance into its components of stocks, bonds, cash, fees, regions, currency in real time
To follow next year:
- Evergreen Riester in the "Riester Pocket"
- Evergreen Rürup in the "Rürup Pocket"
- Evergreen company pension scheme in the "bAv Pocket"
- Aggregation of third-party custody accounts, real estate assets, current accounts, statutory pensions, company pension schemes, Riester and Rürup for a precise forecast of pension income
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