Posted By 
By Aman Raina, SageInvestors.ca
Special to the Financial Independence Hub
We have passed the half-year mark and so I thought it would be a good time to check back into my ROBO portfolio to see how it’s doing and if there is anything interesting going on.
I was all good to go on writing a very pedestrian update as the portfolio had not undergone any significant changes in over a year. Then I got a couple of emails.
About a month later I received a follow-up email with some more explanations.
The emails paint a picture of some minor changes and tinkering.
Changes? Lordy there were a few.
After remaining static for about a year and a half, the ROBO made some very significant changes in the portfolio. The asset mix of 85 per cent stocks and 15% bonds remained, but the allocations were altered quite dramatically. Here’s the breakdown along with the allocations in the past.
Caption: Asset allocation of my ROBO portfolio since inception
Allocation to US stocks fell from 32.5% to 26.5%
- Allocation to Canadian stocks fell from 22.5% to 10.5%
- Allocation to Emerging Market stocks increased from 10% to approximately 16%
- Allocation to other Foreign Stocks increase from 15% to 32%
- The bond allocation changed from domestic government and corporate bonds to Government and US bonds.
This marks the 3rd significant change in my portfolio’s asset allocation in the 4 1/2 years I’ve had the portfolio. I think we can clearly say this portfolio has not been passively managed.
The changes are pretty dramatic, but actually welcome. Regular readers of this blog know I’ve been a bit critical on the ROBO’s concentrated exposure to US and Canadian stocks. Prior to this adjustment, almost 55 per cent of the equity component was in US/Canadian stocks, which I thought was pretty high. Granted, it has been a winning move as the results have been quite strong. I have been concerned that the portfolio is pretty exposed if the markets were to take a major downturn. It seems ROBO has gotten the message and re-calibrated the portfolio. This is a good thing to see, although again I wonder why it took so long. I also wonder if this rebalancing was more of a market timing action or an asset reallocation action? Hard to say.
The other change involved the rotation of ETF products. ROBO decided to use different ETF products. Here’s the summary.
Bonds
- Sold BMO Mid Fed Bond Index (ZFM) and bought Mackenzie US Government Bond ETF (QTIP)
- Sold iShares Core Canadian Bond ETF and bought BMO Long Fed Bond ETF (ZFL) .
This is ROBO’s latest tinkering of the Bond component of the portfolio.
After initially investing in Risk Managed Bonds, and then rotating into straight Corporate and Government Bonds, ROBO has decided to get more exposure to US Government Bonds, more specifically inflation protected bonds, by adding the Mackenzie product. Why the rotation into a very specialized part of the bond market? Does ROBO see inflation on the horizon and is looking to protect itself? The allocation in the bond component of the portfolio has remained consistent at 15 per cent, but there is far too much churning of product within it for my liking. ROBO has been quite active in the bond side.
Foreign Equity
ROBO decided to break the Foreign Equity exposure into 2 separate ETFs.
- Sold iShares Core MSCI EAFE (IEFA) and bought iShares Core MSCI EAFE INI (XEF) and iShares Edge MSCI Low Volatility Global ETF (ACWV).
Again ROBO seems to want to play around the edges by trying to add exposure to more sophisticated and frankly more actively managed investment strategies. The XEF is the same as the IEFA except it is currency hedged, which means it carries a higher cost. There are different schools of though on whether currency hedged ETFs are any better than currency unhedged ETFs.
With taking on the ACWV, ROBO is now tinkering with low-volatility strategies. Low volatility funds have been the rage since the 2008 financial meltdown, with the industry cranking out products that follow strategies of investing in low beta or low volatility stocks that will in theory be resistant to market downturns. Jury is still out on it.
ROBO has decided to move away from a very simple, straightforward allocation to a more complex strategy for investing in foreign stocks.
Emerging Market ETFs
- Sold iShares Core MSCI Emerging Mkt (IEMG) and bought iShares Core MSCI Emerging Low-Vol (EEMV).
Again, ROBO has decided to rotate the Emerging Market exposure into a more complex strategy by rotating into an ETF that actively invests in low volatility Emerging Market stocks. Complex strategies carry higher costs with the Management Expense Ratio for EEMV coming in at 0.68%. There is a discount applied that takes the MER down to 0.25%, but it’s until 2023.
Performance
One of the reasons I decided to undertake this exercise was to see if this type of service/model can make money for investors. To recap, I started by investing $5,000 of my own money into a leading Canadian Robo Advisor firm. At the end it’s about performance. So how has my robo portfolio been doing?
- Year to date, the portfolio has returned 9.2%
- Since the anniversary date in January the portfolio has returned 3.6%
- The portfolio is up 28.5% since inception
- The portfolio has earned $72.69 since January 30, 2019
- Total fees paid since January 30, 2019 $14.74 or 0.23% of assets
- December 31 2018 value =$5,793.86
- January 30 2019 value = $6,110.86
- July 30 2019 value = $6,328.90
- Change $218.08
The markets have popped back in 2019 after some deep pressure in 2018. The portfolio has responded. What will be interesting is to see how the portfolio will respond with all the changes in asset allocation and security selection.
The bottom line is portfolio is getting results. We’ll check back in on the 5th anniversary of the portfolio and try to take a really honest assessment of the performance and behaviour of this portfolio and the whole online portfolio management business model.
Past posts about my Robo Advisor Case Study
Robo Advisors – A personal experience – Part 1: Getting started
Aman Raina, MBA is an Investment Coach and Founder of Sage Investors. Aman teaches new and experienced investors how to make educated and successful investment decisions so they can achieve financial freedom in their lives with confidence. Follow Aman on Twitter and Facebook. This blog was originally published on October 18, 2019 and is reproduced here with permission.
