Given the looming post-DFM dystopia where managers have been replaced entirely by algorithms, we thought we’d have a peek at what the typical automated portfolio will look like.
Asset Allocator has compared our DFMs’ portfolios with some of the most popular robo-adviser platforms to see how allocations compare.
The key, and indeed only, similarity between investment houses and automated platforms lies with equities, with a like-for-like 54 per cent and 53 per cent held here respectively.
A closer look reveals that the breakdowns diverge after this, with the algorithms choosing to eschew UK equities in favour of heavy bets on the US market.
Here, the computer average comprises just 8 per cent of domestic equity across the balanced portfolios versus DFMs’ 14 per cent (though it's worth pointing out that even that 8 per cent is a stout overweight compared to the weighting given to the home market in a global index), while having slightly more in US equity at almost 20 per cent, when compared to fund managers’ 15 per cent.
Openmoney’s 34 per cent stake in US equity trumps the pack, and is higher than many of our DFMs have to the home market.
At the opposite end of the spectrum, Moneybox has put all its eggs in the global equity basket, with a hefty 65 per cent holding, effectively tracking the Fidelity Index World fund.
Automated platforms are, on average, bigger fans of fixed income. Over one-third of robo-platforms’ total allocation is given to bonds, compared to managers’ 28 per cent.
This will be in large part due to the fact they hold almost no exposure to alternatives like property, infrastructure and absolute return funds. The average robo exposure to these alternatives is 6 per cent compared to 17 per cent for DFMs.
The algorithms show more enthusiasm for government and investment grade paper than DFMs, though fund managers are more inclined to invest in riskier asset classes, namely alternatives, in which robo-advisors avoid completely.
