5 Aug - 8 min read
The pre-pandemic days have seen us taking flying on planes for granted. We sometimes forget that we are flying thousands of feet above the ground.
The reason is simple: you are entrusting the pilot to manning a plane to get you to where you want to go. But behind the man lies a machine, a complicated and complex network of algorithms, gigabytes of data, and powerful processing power. Both man and machine work together in a seamless dance – technology supports, while the pilot guides.
It’s the same approach UOB Asset Management (UOBAM) takes with UOBAM Invest. An investing journey powered by a robo-adviser should make use of the latest technology but be guided by experienced hands – a potent combination of science and wisdom.
“Once you understand how UOBAM Invest’s Digital Adviser works to meet your needs and tailor the best recommendations for you, you can trust it to manage your portfolio while you focus on life’s other priorities,” says Mr. Dharmo Soejanto, Senior Director, Head of Investment Partnerships & Solutions, and Chief Investment Strategist of UOBAM Invest.
UOBAM Invest integrates two key elements of human expertise and technology through much of its platform.
The first is in the brains of the platform, or its investment model. It instructs the platform on what to do and how to execute key investment strategies.
Drawing on its expertise as an award-winning asset manager with over 30 years of experience, UOBAM’s human fund managers have created an investment model to cater to an investor’s needs and closely reflect the complexities of real-life investment planning.
The model is built with several unique features that enable Digital Adviser to customise investment solutions that are best aligned with the investor’s goals, investment horizon, and risk appetite.
For instance, the platform has an algorithm that recommends portfolios according to one’s investment horizon, or how long he is expected to keep investing. The longer one invests, the higher the risk tolerance – and the higher the potential return.
Similarly, UOBAM Invest has a feature called the “glide-path”. This is based on the idea that as you move closer to your target date, the time left to invest is shortened.
To preserve your gains, glide-path will adjust your portfolio to reduce your risk exposure.
For instance, when you are 20 years old, and you intend to retire at 60, you have 40 years to invest. This means that you can take on higher risk levels to reap potentially greater returns. But by the time you are 50, you wouldn’t want to take on so much risk and volatility so close to your retirement date.
The platform, through the use of glide-path, understands this and will automatically rebalance the portfolio to less-risky assets to preserve your capital instead.
Such unique features set the Digital Adviser apart from many other robo-advisors. Rather than a static model, it is equipped to cater dynamically to your unique life situations, spending goals, or shifting risk profile. And it does this automatically without prompting.
While robo-advisories have immense computing power, it still needs to be directed by humans to ensure that it keeps portfolios on the right track amid ever-changing macro-economic and market conditions.
“Technology can help you run faster – that is usually a good thing, but it becomes counter-productive if you are running in the wrong direction,” notes Mr. Soejanto.
This is where the UOBAM’s Multi-Asset Investment Management Unit comes in.
This team of seasoned investment professionals is responsible for all the key investment inputs in UOBAM Invest, such as defining suitable asset classes for investors, curating a list of Exchange-Traded Funds (ETFs) with the right target risk levels, and implementing investment constraints.
An important role they play is in reviewing the Digital Adviser’s capital market assumptions (CMAs) every month, and updating them as appropriate, based on market conditions. These CMAs are based on UOBAM’s long-term expected return views for each asset class, taking into account expected return forecasts, volatility estimates, valuation of each asset class against its own history, and asset class correlation assumptions.
The experts analyse a slew of data, including historical returns, interest rates, and credit spreads, and apply UOBAM’s institutional-grade investment process to create a blended solution for input in Digital Adviser’s optimiser.
“It’s critical that we get the CMAs right, as this determines how the technology executes the portfolio allocation. Our role is to ensure the right investment inputs in our optimiser. With the right CMAs in place, we can then step back and let the technology take over to do its work of optimising returns and rebalancing the portfolio,” stresses Mr. Soejanto.
UOBAM Invest’s approach to melding man and machine helped investors deal with the fallout from the Covid-19 pandemic in 2020.
The Digital Adviser, which is designed to take unusual market event shocks into consideration, revised the forecasting model for clients’ portfolios. It was able to realistically analyse downside risk and revise success probabilities for investment goals, helping investors to plan better. Meanwhile, the robo-advisor avoided the pitfalls of emotion-driven investing, pressing on with quarterly rebalancing that helped to smooth portfolio returns by taking advantage of lower asset prices during the market crash.
Towards the end of 2020, as the investment committee adjusted CMAs, the Digital Adviser began to shift clients’ portfolio allocations away from growth stock ETFs, whose valuations were now increasingly expensive, to more attractively valued Asia-Pacific ex-Japan equities. Seven months later, in June 2021, as the CMAs were adjusted to favour US real estate investment trusts (REITs) rather than Asian stocks, the Digital Adviser shifted portfolio allocations again to optimise expected returns while controlling risks.
This was a prime example of man-machine collaboration at work – and for the growing number of UOBAM Invest clients, this is just the first of many to come.
Note: This article was previously published on UOB Asset Management Singapore’s website.
Important notes and disclaimers:
This document is for your general information only. It does not constitute investment advice, recommendation or an offer or solicitation to deal in Exchange Traded Funds (“ETFs”) or in units in any Unit Trusts (“Unit Trusts”, ETFs and Unit Trusts shall together be referred to as “Fund(s)”) nor does it constitute any offer to take part in any particular trading or investment strategy. This document was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. The information is based on certain assumptions, information and conditions available as at the date of this document and may be subject to change at any time without notice. If any information herein becomes inaccurate or out of date, we are not obliged to update it. No representation or promise as to the performance of the Fund or the return on your investment is made. Past performance of any Fund or UOB Asset Management (Malaysia) Berhad and any past performance, prediction, projection or forecast of the economic trends or securities market are not necessarily indicative of the future or likely performance of the Fund or UOBAM. The value of any Fund and the income from them, if any, may fall as well as rise, and may have high volatility due to the investment policies and/or portfolio management techniques employed by the Fund. Investments in any Fund involve risks, including the possible loss of the principal amount invested, and are not obligations of, deposits in, or guaranteed or insured by United Overseas Bank Limited (“UOB”), UOBAM, or any of their subsidiary, associate or affiliate (“UOB Group”) or distributors of the Fund. Market conditions may limit the ability of the platform to trade and investments in non-Malaysia markets may be subject to exchange rate fluctuations. The Fund may use or invest in financial derivative instruments and you should be aware of the risks associated with investments in financial derivative instruments which are described in the respective Fund’s prospectus. The UOB Group may have interests in the Funds and may also perform or seek to perform brokering and other investment or securities-related services for the Fund. Investors should read the Fund’s prospectus, which is available and may be obtained from UOBAM or any of its appointed agents or distributors, before investing. You may wish to seek advice from a financial adviser before making a commitment to invest in any Funds, and in the event that you choose not to do so, you should consider carefully whether the Fund is suitable for you. Any reference to any specific country, financial product or asset class is used for illustration or information purposes only and you should not rely on it for any purpose. We will not be responsible for any loss or damage arising directly or indirectly in connection with, or as a result of, any person acting on any information provided in this document. Services offered by UOBAM Invest are subject to the UOBAM Invest Terms and Conditions.
UOB Asset Management (Malaysia) Berhad 199101009166 (219478-X)
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