Which Robo Advisor Should You Use In Malaysia?

Which Robo Advisor Should You Use In Malaysia?

You should start investing.

You know this, but the thought of it scares you. You have no idea how to pick the right investments, you don’t trust yourself with large financial transactions and you suspect that investing involves a certain proficiency in math that you don’t have.

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If this sounds familiar, then a robo advisor could be what you need.

What is a robo advisor?

A robo advisor is a digital platform that uses algorithms to automate your investment portfolio. It automatically creates a portfolio for you based on your investing goals and risk tolerance, and periodically rebalance your portfolio.

Typically, a robo advisor uses your money to invest in exchange-traded funds (ETFs), which are groups of stocks, bonds or other investments.

But each robo advisor implements a different investing methodology – the underlying investments and allocation of your portfolio will differ based on the robo advisor platform you invest in.

What are the advantages of investing with a robo advisor?

  • Passive investing. If you’re not comfortable making investment decisions on your own, or you don’t want to (or can’t) spend a lot of time researching, monitoring and rebalancing your portfolio, then robo advisors could be a good alternative.
  • Diversification. Being diversified (i.e. having many types of investments versus just one type) helps you spread your risk. This means that if a particular investment in your portfolio performs badly, you won’t be greatly affected as you have other types of investments.
  • Avoid emotion-based investing. Some investors panic and withdraw their money in a downturn or pump in more cash when the market is rising. But timing the market is incredibly hard and can lead to smaller returns in the long run. With a robo advisor, you can take a ringgit cost averaging approach by investing a fixed amount every month, avoiding emotion-driven impulses to buy and sell based on market sentiment.
  • Low fees. Robo advisors charge management fees that are typically below 1% a year. charge relatively low fees. By contrast, if you invest in unit trust funds you may need to fork out 0.5% to 2.5% per annum. Some unit trust funds also charge up to 5% upfront in sales charge, and another 5% when you redeem your investment value.

What are the drawbacks of investing with a robo advisor?

  • Limited customisation. Robo advisors allow you to set certain things like your risk profile or investing goals, but that’s about it. You generally can’t tinker with the investment methodology, choose (or exclude) individual investments in your portfolio or adjust your exposure towards certain geographical regions.
  • Non-transparent investing methodology. If you’re a savvy investor, you may be interested in the specific criteria a robo advisor uses to select ETFs, or how a robo advisor chooses to rebalance your portfolio. However, this information is not always made available.
  • Dividend withholding tax. Some robo advisors invest heavily in securities listed in the US. However, as a foreign person buying US stocks, your dividends will be subject to a 30% withholding tax, although your robo advisor platform may be able to seek partial reimbursement of these taxes for you.

What robo advisor platforms are there in Malaysia?

While they’ve been around since 2008, the first robo advisor launched in Malaysia only two years ago. Singapore-based StashAway launched in 2018, while MyTHEO and Wahed Invest entered the market a year later. This year, Bank Islam Malaysia’s BEST Invest and Raiz joined the fray.

Here’s how these robo advisors compare against each other at a glance:

PlatformLaunchedMethodologyMin initial investmentAnnual fees
BEST Invest2020Applies robo-intelligence and big data technology to suggest a portfolio of diversified Shariah-compliant unit trust investmentsRM100.5% to 1.8%
MyTHEO2019Uses proprietary algorithms to create functional portfolios that incorporate risk-based investing and “smart beta”RM1000.5% - 1%
Raiz2020Uses algorithms to determine your risk profile to construct a portfolio of Amanah Saham Nasional Berhad (ASNB)’s unit trust fundsRM5RM1.5 a month (under RM6,000) or 0.3% (RM6,000+)
StashAway2018Uses proprietary investment strategy that reacts to economic fundamentalsRM00.2% - 0.8%
Wahed Invest2019Optimises the investor's portfolio with Shariah-compliant investments using modern portfolio theoryRM1000.39% - 0.79%

Comparison of robo advisor fees

Robo advisorAnnual feesAnnual fund expenseCurrency conversion fee
BEST Invest-0.5% to 1.8%-
MyTHEO0.5% - 1%0.05% to 0.80%0%
RaizRM1.50 a month (under RM6,000) or 0.3% (RM6,000+)1%-
StashAway0.2% - 0.8%0.04% to 0.76%0.08%
Wahed Invest0.39% - 0.79%0.49% - 0.89%-

Most of these robo advisors charge fees according to your portfolio size – the larger your portfolio, the less fees you pay. BEST Invest is an exception – its fees are included in the annual management fees of its unit trust fund investments, which do not decrease with your portfolio size.

Besides the fees of the robo advisor itself, there are also fees associated with the underlying investments that make up your portfolio. BEST Invest, Raiz and Wahed Invest invest in unit trust funds, which generally have higher fees. MyTHEO and StashAway invest in ETFs, which have lower fees.

Although fees can make a huge difference to your portfolio over time, you shouldn’t pick a platform solely on who charges the least. You should also consider how the platform chooses assets to invest in, how it rebalances your portfolio and whether it provides any other services that could improve your returns.

Portfolio allocation

Here are examples of the most aggressive portfolios of each platform:

BEST Invest (“Aggressive Growth-Oriented Investor” portfolio)

TypeNameAllocation
EquityBIMB-Arabesque Asia Pacific Shariah-ESG Equity Fund30%
EquityBIMB-Arabesque I Global Dividend Fund 160%
SukukBIMB ESG Sukuk Fund Class A10%

BEST Invest invests in five types of unit trust funds – three equity funds, a sukuk fund and a money market fund. All its investments are Shariah-compliant.

Based on the portfolio above, we used Morningstar to estimate its geographical allocation:

RegionAllocation
Greater Europe9.41%
United Kingdom0.79%
Western Europe - Euro4.34%
Western Europe - Non-Euro3.54%
Middle East / Africa0.74%
Americas39.99%
United States37.09%
Canada2.06%
Central & Latin America0.84%
Greater Asia50.6%
Japan26.8%
Australasia5.96%
Emerging 4 Tigers8.67%
Emerging Asia - Ex 4 Tigers9.18%

Over a third of BEST Invest’s aggressive portfolio is invested in the United States, while a quarter is invested in Japan. If you’ve been investing mostly in local securities, this portfolio could help you spread your risk globally.

However, it’s worth noting that both the BIMB-Arabesque Asia Pacific Shariah-ESG Equity Fund and BIMB-Arabesque I Global Dividend Fund 1 have underperformed benchmarks since their inception.

MyTHEO (“Growth” portfolio)

TypeNameAllocation
China RegioniShares MSCI Hong Kong ETF6.29%
iShares China Large-Cap ETF2.42%
Diversified Emerging MktsiShares MSCI Frontier 100 ETF4.90%
India EquityWisdomTree India Earnings ETF3.22%
Japan StockiShares MSCI Japan ETF18.18%
Large GrowthInvesco QQQ Trust15.15%
Large ValueInvesco S&P 500 Pure Value ETF3.26%
Vanguard Value ETF5.87%
Latin America StockiShares MSCI Brazil Capped ETF2.66%
Mid-Cap ValueiShares Russell Mid-Cap Value ETF18.28%
Miscellaneous RegioniShares MSCI Singapore Capped ETF4.66%
iShares MSCI United Kingdom ETF9.42%
Small ValueiShares Russell 2000 Value ETF5.36%
CashCash0.33%

MyTHEO’s most aggressive portfolio setting is almost entirely made up of equities. Slightly less than half of that (47%) goes to US stocks, while 52.1% goes to international stocks. Big portions of that are made up of specific regions, such as a 18.18% allocation to Japanese equities and 6.29% to Hong Kong equities.

According to backtested results, this portfolio has a compound annual growth rate (CAGR) of 8.59% from January 2013 to June 2020. However, this doesn’t necessarily reflect the returns you would have gotten with MyTHEO, as the robo advisor may change its selection or allocation of its underlying investments.

Raiz (Aggressive portfolio)

TypeNameAllocation
Malaysian equitiesASN Equity 3 Fund80%
Malaysian mixed assets (conservative)ASN Sara 1 Fund20%

Raiz’s highest-risk portfolio is only made up of two unit trust funds from Amanah Saham Nasional Berhad (ASNB). These funds are not considered Shariah-compliant by the Securities Commission of Malaysia, as they invest in Maybank, which is considered a non-Shariah-compliant stock. However, Malaysian Islamic councils consider these funds ‘harus’ or permissible.

As of July 2020, ASN Equity 3 has a 10-year annualised return of 3.91%, while ASN Sara 1 has an annualised return of 6.11% in the same period.

Raiz is the only robo advisor that allows you to automatically invest spare change from everyday purchases. Here’s how it works: you link a spending account with Raiz, which will be monitored for transactions. If you make a transaction – say, RM40.20 for petrol – Raiz will round up the transaction and invest the RM0.80 difference.

At the time of writing, Raiz only accepts deposits if you have a Maybank account.

StashAway (Highest-risk growth portfolio – 36% Risk Index)

TypeNameAllocation
International equitiesiShares MSCI All Country Asia ex Jpn ETF6%
KraneShares CSI China Internet ETF20%
SPDR Portfolio Emerging Markets ETF7%
Equity sectors (US)iShares Core S&P Small-Cap ETF15%
Health Care Select Sector SPDR ETF9%
Consumer Discret Sel Sect SPDR ETF15%
Real EstateVanguard Global ex-US Real Est ETF7%
CommoditiesSPDR Gold Shares20%
Cash-1%

Prior to its May portfolio reoptimisation, StashAway’s highest-risk portfolio consisted largely (86.5%) of US stocks.

In response to the foreseeable economic uncertainty, they’ve made a few changes to this portfolio. This includes decreasing USD exposure, as they think the USD may depreciate as the economy recovers. This new portfolio has a US stock exposure of 38.71%. They’ve also introduced a Chinese technology ETF (20%) and increased gold exposure (20%).

According to backtested results, this portfolio has a compound annual growth rate (CAGR) of 10.01% from January 2016 to June 2020. However, this doesn’t necessarily reflect the returns you would have gotten with StashAway, as the robo advisor adjusts the selection or allocation of its underlying investments in response to economic conditions.

Head on to StashAway to find out more. As an iMoney reader, enjoy reduced fees when you sign up through this link. But as always, remember to do your own research before investing.

Wahed Invest (“Very aggressive” portfolio)

TypeNameAllocation
Malaysian stocksMyETF MSCI Malaysia Islamic Dividend20%
US stocksWahed FTSE USA Shariah ETF65%
SukukRHB Islamic Bond Fund12.5%
Cash-2.5%
Wahed Invest only invests in four types of securities – three ETFs and one unit trust fund. All investments are Shariah-compliant.

Of all the robo advisors listed, Wahed currently has the largest exposure (65%) to the US stock market. According to its own statistics, if you had invested RM9,510 on May 31, 2010 in this portfolio, it would have grown to RM22,872 by April 30, 2020. That’s an annual growth rate of 9.25%.

On the other end of the risk scale, Wahed’s “very conservative” portfolio invests 90% in RHB Islamic Bond Fund and leaves another 10% in cash. We’re not sure if it’s worthwhile signing up for Wahed if you plan to use the “very conservative” portfolio. It seems slightly more cost-effective to invest in the unit trust fund directly through a platform like Fundsupermart, as you won’t have to pay Wahed’s platform fees.

Which robo advisor should you pick?

The best robo advisor for you could boil down to these investing preferences:

  • BEST Invest: if you want to invest in Shariah-compliant unit trust funds
  • StashAway and MyTHEO: if you want a globally diversified portfolio that invests in low-cost ETFs
  • Raiz: if you want to invest locally in ASN funds, or if you want to automatically invest your spare change
  • Wahed Invest: if you want to invest in Shariah-compliant securities that diversify locally and in the US
These suggestions are based on each platform’s most aggressive portfolio settings, so they may only apply to you if you have a high risk tolerance. However, each platform allows you to adjust the risk profile if you are a more conservative investor, which will affect your portfolio allocation. Regardless of your risk profile, we recommend that you visit each platform’s website and learning pages to find out more before making a decision.

If none of these platforms appeal to you, you could even go the DIY route. This means that you’ll have to sign up for one of these platforms, look at their portfolio allocations and replicate them yourself by buying individual ETFs or unit trust funds.

A robo advisor removes a lot of this friction – you can construct a complete portfolio with much less money, without having to manually calculate how much of each security you need to buy or rebalance your portfolio yourself. It also uses algorithms to respond to market conditions.

If you’ve been putting off investing because you find it scary, and if you value convenience over everything else, then a robo advisor could be what you need.

This article was first published in February 2020 and has been updated for freshness, accuracy and comprehensiveness.

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