Disclaimer: The following post is sponsored by SquirrelSave, all opinions and views expressed in this article are courtesy of Financial Horse.
With roboadvisors like StashAway, fund management platforms like MoneyOwl and EndowUs, and even the traditional banks coming in such as DBS and UOB Roboadvisors, the investing landscape is getting richer and more diverse for investors in Singapore. This is excellent news for investors like you and me as more choice means more options.
Today’s post will introduce a new entrant into the investment platform landscape, a fully AI digital investment manager, SquirrelSave. More than just a robo-advisor, SquirrelSave is an AI-focused robo-advisor that helps investors customize risk-managed portfolios.
What is SquirrelSave?
From their website:
SquirrelSave brings Smart Investing for Anyone, Anywhere, Anytime. SquirrelSave is the innovative fully AI-driven investment service offered by PIVOT Fintech, a Singapore-based technology company regulated by the Monetary Authority of Singapore. SquirrelSave is PIVOT’s first phase execution to get investing done right.
People say they invest. But they are gambling. Sales people tell you the half truth “high risks, high returns”. But they conveniently don’t tell you the other half, “high risks, high losses”. Sadly, they wriggle out and only tell you when you lose.
Investing should be about risks first. But people like to talk returns. As humans, that’s how we are pre-programmed. With live streaming data, low cost cloud storage and massive computing power, SquirrelSave tracks data points as the earth spins 24/7 to monitor and predict risk trends. By knowing your chosen risk level, SquirrelSave then trawls over 2,000 diversified Exchange Traded Funds (ETFs) to design a personalized portfolio comprising a few selected ETFs whose combined risk prediction matches your chosen risk and gives the highest predicted return for the time horizon you chose. SquirrelSave will never forget your chosen risk level and will continue watching to find that combination whose predicted return is highest, even if you invest a small amount.
How does SquirrelSave work?
Very simply, SquirrelSave is a robo-advisor that uses AI to create a customized portfolio based on your risk profile.
The two unique features of SquirrelSave are:
(1) SquirrelSave Risk Profiler; and
(2) SquirrelSave Digital Asset Allocation System (DAAS).
SquirrelSave use modern portfolio theory to drive their algorithms with real-time data to predict a diversified investment portfolio that fits your personal risk profile identified by their Risk Profiler or as determined by yourself.
What I like about SquirrelSave?
Smart philosophy
I really like the emphasis on risk. SquirrelSave’s focus is using AI to manage risks before chasing returns.
I fully agree with that. Risk is very important before you embark on any investment. It sounds very simple but this is often underestimated by investors. Especially for beginner investors, you may not be aware of what risk you can actually tolerate. Many beginner investors unknowingly delve into a far riskier investment than what they were prepared for. Where a 20% drop in their investments because of a market turn causes them to panic because their expectations about risk and reward were totally misaligned.
So it’s great that SquirrelSave puts the emphasis on risk profiling. And they have a very unique system of scoring their investors before they customize a portfolio for you, which will be discussed below.
The other great thing about SquirrelSave is that their investing philosophy is very reasonable. They rightly emphasize the long-term nature of investing. SquirrelSave recommends an investment time frame of at least a year and they only take in investors who are aligned with this investment horizon. In fact, SquirrelSave takes the view that an investor should preferably take a three-year time horizon to manage risks over market cycles. This long-term view of investing is something I fully agree with and it is a very reasonable investing philosophy to undertake.
You can also set your financial goals at the outset. Whether you want to build wealth, save for retirement or save for education for your children, these are all worthwhile goals that SquirrelSave takes into account before recommending a portfolio.
Risk profiling
SquirrelSave takes their risk profiling seriously. This is really good in my opinion, as ultimately risk will determine what kind of investment portfolio you should undertake.
Interestingly, SquirrelSave has a Risk Profiler Game that you can play to assess your risk profile, instead of the usual risk questionnaire. The Risk Profiler Game uses game theory which focuses on risk-reward choices and behavior. You make a series of risk-return decision(s) and the profiler analyzes your results with others in similar demographics. There are five risk profiles: conservative, balanced, growth, aggressive, very aggressive.
I played the Risk Profiling Game and got a very aggressive risk profile ?
You can also choose your own risk profile if you don’t agree with your results. Nobody is stopping you from being a conservative squirrel!
SquirrelSave does note that the risk categories are just labels. Each client may have a different portfolio even if they may have the same risk category label.
Global ETF Portfolio
SquirrelSave aims to achieve good risk-adjusted returns by predicting market trends across different asset classes to minimize portfolio volatility over the medium to long-term.
How they do this is through a Global ETF portfolio. They invest in ETFs listed on USA exchanges that represent a broad range of asset classes, sectors and regions.
What kind of ETFs does SquirrelSave invest into? SquirrelSave’s DAAS has screened a select pool of ETFs which cover developed and emerging equities, fixed income, commodities and currencies. Based on your risk profile and entry timing, you will get a unique portfolio asset allocation comprised of a selection among this pool of ETFs.
The shortlisted ETFs to facilitate global asset allocation are broadly divided into:
- Developed Country Equity: US, EU, Australia, Singapore, Japan
- Emerging Market Equity: Asia ex Japan, BRICs
- Alternatives: Gold, Oil, Commodity, REITS, Currency
- Fixed Income: Emerging Market Bonds, High yield Bonds, Corporate Bonds, Government Bonds
Dividends from your ETF holdings will be credited to the cash allocation component of your investment portfolio, and will be reinvested at the next rebalancing. Portfolio balancing is done only if SquirrelSave predicts that a change in your portfolio components will likely generate a better predicted return for the same risk you are taking.
Methodology
Based on this White Paper by their founder, Victor Lye, SquirrelSave uses its proprietary F.A.M.E. method to provide customized risk-adjusted portfolios.
According to the White Paper, F.A.M.E. – or Factor Analytics Machine Learning Engine, assists to analyze different investment markets, drives portfolio optimization based on factor model analyses, and executes dynamic rebalancing separately for each client, rather than as a group risk-labelled bucket.
SquirrelSave’s F.A.M.E., combines customer characteristics such as Risk Tolerance, Age, Investment Time Horizon and Market Conditions when an investor is seeking a recommended asset allocation. The customer characteristics will affect the parameter settings of the Debt/Equity Ratio, Investment Asset Class Coverage and UB/LB for each asset class. With the Dynamic Asset Allocation and Rebalancing function, F.A.M.E. helps to control the downside risks versus major market indices so the client will not panic during any black-swan event.
Returns
Based on SquirrelSave’s theoretical investment models using back testing techniques over the period 1 January 2006 to 31 October 2019, the long-term annualised returns range from 9% for the lowest risk portfolio to 11% for the highest risk portfolio.
SquirrelSave uses reference portfolios for 5 broad risk classes, namely Conservative, Balanced, Growth, Aggressive and Very Aggressive, to track performance. For each of the broad risk classes, SquirrelSave selected the top performing funds as well as available passive benchmark portfolios and compared them with their 5 reference portfolios using (i) Sharpe Ratio and (ii) Maximum Drawdown.
All 5 SquirrelSave risk class reference portfolios compare favourably with the respective top performing funds as well as the passive benchmark portfolios. For more information, please refer to the FAQ section on their website (see Track Record of SquirrelSave’s portfolios).
Absolute Investment Returns (January 2006 to July 2019)
Additionally, according to SquirrelSave, their 5 reference portfolios delivered commendable absolute returns (ranging from 6.4% for Conservative to 8.3% for Very Aggressive) against the top performing funds in the respective risk classes.
List of top performing funds used in the comparisons:
Fees
SquirrelSave keeps their pricing transparent as follows:
(i) Annual Management Fee
0.50% per annum – calculated and paid daily based on the daily average market value of portfolio assets.
(ii) Performance Fee
10% of the annual absolute return with highwater mark, calculated and pro-rated after each calendar year-end, and paid in arrears.
SquirrelSave charges a Performance Fee if they generate a positive net excess return for you over the full calendar year, with a highwater mark. The highwater mark is the highest value that your portfolio has reached since its inception.
The good news is that the performance fee is waived until 31 December 2019.
Also note that as SquirelSave’s global ETF portfolio invests in ETFs listed on USA exchanges, your funds will be converted into USD in order to invest.
Easy to use platform
It’s easy to get started on their website with 4 simple steps.
There is no minimum sum required to open a SquirrelSave account, but they would encourage you to start with around $15,000 to take advantage of their AI system capabilities. Non-Singapore citizens/PRs can also open an account (except US citizens and US tax residents).
Closing Thoughts
The increasing number of players in the investment platform landscape means more choices for savvy investors. SquirrelSave’s investing philosophy focuses on long-term returns and uses AI and market data to design portfolios to match investors’ risk profile and achieve their investing goals.
If this sounds interesting to you, do check out SquirrelSave’s website for more information and try out their unique Risk Profiling Game for yourself!
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Only thing I didn’t like is that you can’t see how changing the risk profile affects what the constituents are for the different asset class allocations. Like what’s under the ‘alternative’ component.
And the statement that tracks changes to the portfolio is very comprehensive but kinda overwhelming.
I do like that there’s a performance fee with a lower flat management fee (although it shouldn’t be tooo actively managed?).
Hi there! Good points that you’ve raised. Actually if you’re interested in finding out more details, the SquirrelSave team is really responsive – https://www.squirrelsave.com.sg/contact-us.html They’re even available on Whatsapp.