Sophisticated investors like active management.
Robo advisors have come a long way from the rudimentary investing platforms they once were. The industry that started out offering just the basic tools for building and rebalancing portfolios of exchange-traded funds has evolved to court sophisticated investors with a greater variety of investments and strategies. A common theme of these robo advisors is using actively managed portfolios to minimize downside risk. “Sophisticated investors often have unique risk-return and income goals,” says Evan Kulak, CEO of robo advisor Polaris Portfolios, one of the next-generation robos targeting these investors with alternative assets and high-income portfolios.
qplum
Qplum is not your typical robo advisor. Former hedge fund manager and qplum co-founder Mansi Singhal created the platform to help investors use what she learned during a profitable trading career. Qplum’s five actively managed portfolios are categorized by risk, with asset allocations that adjust to the market. Since February 2016, qplum’s annualized returns have ranged from 4.2 percent for the conservative portfolio Fairway to 11.7 percent for aggressive growth portfolio Sunflower. “Many of our clients have switched from other robo advisors to qplum because we have a systematic plan to handle market downturns, and our strategies evolve with the changing market conditions,” Singhal says.
Management fee: 0.5 percent
Investment minimum: $10,000 ($1,000 for retirement accounts)
Building Benjamins
This niche robo advisor stands out from the competition by having alternative asset classes that robo advisors rarely offer — assets like timberland, reinsurance, alternative lending, real estate, infrastructure and agricultural land. These assets have little correlation to stocks and bonds and behave differently in volatile markets, offering greater protection from the kind of sharp declines seen during the financial crisis. Adding assets like these to a typical stock and bond portfolio produces “wiser diversification and gives you 1.5 to 2 percent extra expected return at every level of risk,” says Benjamin C. Halliburton, CEO of Tradition Capital Management and Building Benjamins’ founder.
Management fee: 0.45 percent
Investment minimum: $50,000
Polaris Portfolios
Instead of settling for the goal of matching market performance, Polaris attempts to exploit market inefficiencies for better long-term gains. The robo advisor combines active and passive management to design its portfolios. First, it quantifies the amount of additional return it can expect for an asset’s risk, including which factors might produce returns that beat the market index. Next, Polaris establishes investment rules to capture these factors. Lastly, the platform incorporates the rules into an investment model that ranks asset classes by attractiveness, choosing only the best likely performers for portfolios. Along with stock and bond ETFs, Polaris also invests in reinsurance, master limited partnerships, gold and alternatives funds.
Management fee: 0.75 percent
Investment minimum: $5,000
M1 Finance
Sophisticated investing doesn’t get more affordable than M1 Finance’s free platform. Do-it-yourself investors have the option of building their own portfolios from thousands of stocks, bond funds and ETFs. “At M1, our users can easily build and organize a custom portfolio using any stock or ETF they want,” says Brian Barnes, M1 Finance founder and CEO. M1 Finance rebalances the portfolio for free every time new money is added. For investors who don’t want to construct their own portfolios, M1 has free ready-made advanced investment portfolios, including those using the hedge fund strategies of Bill Ackman’s Pershing Square and Carl Icahn’s Icahn Capital, among others.
Management fee: None
Investment minimum: $100
Interactive Brokers Asset Management
Formerly known as Covestor, the Interactive Brokers Asset Management doesn’t invest for you but rather invests with you. Investors choose from 61 actively managed portfolios. Money managers trade their own money and copy their trades for investors using proprietary “co-trading” technology. The managed portfolios cover a range of investment styles. For instance, one top performer, Sparrow Unconstrained Long/Short Strategy, incorporates buying stocks with shorting or borrowing stocks, selling them and buying them back later after their prices have fallen. (If the stock prices don’t fall, investors lose money.) The portfolio touts a one-year 41.5 percent return. The worst performer, MergerArb, managed by Atlas Capital, lost 7.2 percent the past year.
Management fee: 0.08 to 1.5 percent
Investment minimum: $5,000 to $50,000
Hedgeable
Founded in 2009, Hedgeable is the grandfather of sophisticated robo advisors, offering more than 25 kinds of investment accounts, including trusts and custodial accounts for minors. There are also unusual asset classes, such as bitcoin and venture capital. From “short fixed income” to “absolute return,” investment strategies cater to all types of investors and risk appetites. The platform claims to embed downside risk protection into every portfolio, with returns benchmarked against relevant indexes to measure a strategy’s performance. And the $1 investment minimum brings sophisticated investing to the masses.
Management fee: 0.3 to 0.75 percent
Investment minimum: $1
Merrill Edge Guided Investing
Although it’s a far cry from its 1915 Merrill Lynch investment bank origins, the Merrill Edge Guided Investing Platform hasn’t lost its personal touch. The platform merges online investing with approximately 2,000 investment advisors in Bank of America branches and financial centers, giving investors a human manager. And it’s the firm’s investment experts, not algorithms, who design the ETF portfolios. They include long-term strategies as well as tactical asset allocation to take advantage of current market conditions and near-term trends. The goal is “delivering the best potential returns for a given risk level in any market,” says Joe Curtin, head of global portfolio solutions for Merrill Lynch.
Management fee: 0.45 percent
Investment minimum: $5,000
More from U.S. News
9 Dividend ETFs for Reliable Retirement Income
9 Things to Know About Robo Advisors
7 Robo Advisors for Sophisticated Investors originally appeared on usnews.com
