When InvestmentMoats recently published the annual returns of various roboadvisers he invested with – including MoneyOwl – it sparked plenty of heated discussions online. MoneyOwl CEO Chuin Ting Weber weighs in. 

On 24 July 2020, prominent financial blogger Kyith Ng published the returns of various roboadvisers he had invested with from July 2020 to July 2021, including MoneyOwl. MoneyOwl outperformed all roboadvisers in this particular one-year plus period.

This has caused a flurry of activity in the online finance communities, some of which I really didn’t understand. Following an earlier version of Kyith’s article, there was an inexplicable post in which labels were added to all the lines of performance except the top one, MoneyOwl. Is it because MoneyOwl isn’t really a robo so we cannot be compared? Which isn’t so far from the truth, as roboadvisers are investment only, VC-funded and robo as their core product with human advice in the frills. In comparison, we are a comprehensive advisory with a large team of dedicated human advisers – separate from licensed client service officers – all on the Certified Financial Planner programme, augmented by four robo tools, an NTUC social enterprise and a Providend associate company. But that is a topic for another day. There have since been other articles and posts by various roboadvisers and either their supporters or ex-clients, alternately justifying or lamenting performance.

Kyith might be disappointed that the very thing he highlighted in his article – not to judge an adviser by a one-year performance – has been ignored. It reminds me of the iconic, semi-autobiographical book, “Liar’s Poker”, in which Michael Lewis tries to warn young graduates of the soul-destroying life of investment banking jobs, only to end up attracting more to the dark glamour of bond trading and becoming a staple reading for new recruits to that world.

Don’t get me wrong. I am happy that Kyith and other MoneyOwl clients have had a great investing experience over the past year. I am also not surprised that it is so, because the Dimensional approach is evidence-based and Nobel-prize-financial-science supported: when a globally diversified portfolio is tilted towards the dimensions of value, small caps and profitability, you can expect higher, long-term expected return.  But it is neither logical nor wise for any adviser, robo or not, to make a case out of recent short-term performance as the reason why one should invest with them. In fact, robos who have claimed to have had a good system to make the right bets in the past, but which are underperforming big time now, are probably regretting such claims now. This is because markets are, by definition, volatile in the short run. The premiums in Dimensional’s funds are also volatile in the short term.

As such, the lesson from MoneyOwl’s short-term outperformance over the roboadvisers is not that our portfolios will always perform in every time period from now on. I can almost guarantee you that they will not! Instead, I would like to suggest the following lessons as the right ones to draw from Kyith’s article:

Lesson 1:
The dimensions of higher expected return of value, small caps and profitability are far from dead, as some had proclaimed before 2020. When they show up, investors who have remained invested in Dimensional funds on basis of the valuation logic and long-term evidence, harvest large returns.

Lesson 2:
Shifting out of a globally diversified portfolio to incorporate a particular market or region that has done better in the past, like the US market, can boost the portfolio’s projected returns based on historical returns, but it may be unnecessary to incur higher expenses to make such bets, which don’t always work out.

Lesson 3:
Using passive instruments like ETFs does not mean passive or market-based investing. Making macro-related calls by shifting ETFs around to bet on different sectors is active management, which can be costly in terms of returns.

MoneyOwl has never built our investing philosophy or value proposition to clients on the basis of continuous short-term outperformance. Rather, we focus on sufficiency of return and finding the highest reliability of such return for clients. This lies in being globally diversified and keeping costs low – by which we mean absolute expense levels (our Dimensional portfolios have a Total Expense Ratio of around 0.30% p.a. only, no trailer commissions) and not just expenses relative to what it used to be with commissions.

More than that, expenses by themselves mean nothing if the underlying fund manager is actively doing things that detract from performance. We know that traditional active management, including by big fund house names, based on security, sector or market selection, or on macro forecasting market-timing, has generally not worked well. Ditto for ETF-based active management. Most active managers don’t beat the market and those who do, don’t do it consistently. Spraying across a variety of such funds doesn’t achieve more except for more clutter. Why not cut out the guesswork and forecasting, shed the multiple fund manager risk and allocate to a market-based portfolio, in an allocation to a mix of equities and bonds suitable for your needs, ability and willingness to take risk? Find an investment philosophy you can stick with, through good times and bad, and then leave markets to do the work.

Sometimes, in life as in investing, decluttering and keeping solutions simple, simply work best.

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