Are robo-advisors about Low-cost products or `Passive beats Active`?
We live in a world that is using new words in an accelerated pace. I recently ran across the hashtag #phygital. Which reminded me of the hybrid nature of robo-advisory services that has emerged from the growth of robo-services.
The various robo services that have been launched over the past ten years, have transformed the investment management space into a predominately low-cost product space.
Last year, Victor Hagahni and James White – Victor is the Founder and CIO of Elm Partners, and James is Elm’s CEO – wrote an article Is Vanguard More Rolls Royce, or Hyundai? that highlighted an investment world particularity:
With most products and services – cars, doctors, food etc – better quality normally goes hand-in-hand with a higher price. Not so with investing.
They even quote Bill McNabb, former CEO of the Vanguard Group saying:
The whole cost argument from an investment perspective is counter-intuitive.
Listening to Bill McNabb`s short interview at the 2019 Academic and Practitioner Symposium on Mutual Funds and ETFs, he makes a very important point that is not well understood.
The transformation in the investment management space is clearly turned the space into A low-cost product space.
This often is confused with a transformation into A passive beats active space.
The growth of robo-advisory (apologies for the umbrella term) is Not about passive over active. Robo-advisory is about the wide spread use of low cost products. We live in a world that it is becoming more difficult to imagine high cost investment products.
One of the best examples of low cost, active and passive management, is Elm Partners.
12bps, tax harvesting, portfolio construction based on economic fundamentals and other liquid risk premia in addition to equity market Beta.
Listen to Victor Hagahni and James White discuss their approach which is for accredited investors only. Their offering includes less than half a dozen investment programs and the possibility of SMAs.
Elm Partners does not aim to do everything for everybody. Low cost and transparency is paramount for their business. You can follow their quarterly reporting on Seeking Alpha, here. You can follow their thoughtful research here. You can savor Victor`s Tedx Talk Where are all the Billionaires? & Why should We Care?: where he uses the puzzle of the missing billionaires to help us explore how and why most investors fail to capture the returns offered by the market. This actually leads into the main reasoning for Elm Partners investment strategy, the so-called “Active Index Investing.”
Listen to Victor Hagahni and James White discuss with me their approach which is for accredited investors only. Their offering includes less than half a dozen investment programs and the possibility of SMAs. Elm Partners does not aim to do everything for everybody. Low cost and transparency are paramount for their business.
[1] Former Chairman and CEO of Vanguard, Bill McNabb Discusses the Future of the Investment Industry from the 2019 Academic and Practitioner Symposium on Mutual Funds and ETFs. Presented by UVA Darden and the Investment Company Institute.
