THE use of robo-advisers, or robos, to manage one’s investment portfolios is expected to gain traction in Malaysia.
According to Wahed Inc’s head of Asia-Pacific Syakir Hashim, this trend is set to take place, as advancing technology and evolving consumer needs continuously shape the wealth management industry.
“Demand for mobile-based, simple investing tools that makes a non-finance trained, or experienced, person a better investor will be much in need, as people need assurance in dealing with the volatility and uncertainties to come, ” he tells StarBizWeek.
Wahed, which is the parent company of syariah-compliant robo-adviser Wahed Invest, is currently looking at expanding its presence in Asean following its entry into Malaysia.
The US-based group is the third company to be given a robo-advisory licence in Malaysia by the Securities Commission.
Launched in October 2019, it is the first Islamic digital investment platform in the country.
“We aim to attract and encourage Malaysians, especially the young, to take charge of their financial well-being with smarter investments in line with their faith, ” Syakir says.
“Everyone has different financial goals and aspirations, but for an inexperienced, or first-time investor, the lack of proper financial education and opportunities, coupled with daunting, and sometimes, difficult-to-understand financial jargon is enough to deter and prevent them from investing and taking charge of their financial well-being.”
Nevertheless, Syakir concedes, there are sceptics who tend to say that instead of using a robo, one should create one’s own portfolio and trade on one’s own.
“We feel that if a person is able to do so, it is great and they should do so themselves, ” he says.
But he stresses that Wahed’s aim is to help millions of people who have no time to learn how to trade; how to construct their own investment portfolios, as their speciality or craft is not in finance but in other fields; and would like to outsource their wealth management strategy to a company.
“We are able to serve impartial investment advice at a scale not seen in the traditional sector. Wahed’s robo incorporates funds from three different investment managers to represent each asset class it carries in its portfolios. We will be adding more funds in the future to help our clients diversify into more asset classes, ” Syakir says.
Wahed’s current portfolio allocation options include investments into US stocks, Malaysian stocks, sukuk (Islamic bonds), and gold.
With low starting investment of RM100, low fees, and no lock-in period, Wahed claims it platform has removed the barriers to investment management and portfolios that were traditionally reserved for high net worth investors.
For Wahed, Malaysia will play a key role in driving its growth in Asia-Pacific as the regional hub for its operations.
It notes that as one of the most developed Islamic capital markets, Malaysia is uniquely positioned to meet the increasingly sophisticated and demanding needs of South-East Asian investors and help create opportunities in Islamic finance.
“Islamic finance is one of the fastest-growing sectors in the world, and Wahed has enabled the global Muslim community to participate in global financial markets by making investing both accessible and ethically-compliant, ” Syakir says.
“We believe with the establishment of the Special Committee on Islamic Finance as announced at the recent Budget 2020, it will definitely provide a push to further promote and develop the Islamic finance ecosystem and strengthen Malaysia’s leadership as a centre of excellence in Islamic finance, ” he points out.
In addition, Syakir says the group recognises Malaysia as one of its key markets and a country that is on track to becoming a leader in Islamic digital economy backed by an ecosystem that is growing fast.
“Having Malaysia as the hub for Wahed’s Asia-Pacific operations, we plan on tackling new markets such as Indonesia, Singapore and Brunei, ” Syakir says.
“We expect to cater to those markets this year, ” he adds.
At present, Wahed is one of the three licensed and fully operational robo-advisers in Malaysia.
At least two new robo-advisory platforms are expected to roll out their services in the country this year, implying competition in this space is set to increase further.
Nevertheless, Syakir describes it as a positive development for the industry.
“We welcome more players in the market, as the journey to raise awareness on long-term exchange traded fund (ETF)-based investing is an arduous task in the country. Having more players would be good for this collective pursuit, ” he explains.
Wahed will focus on its syariah-compliant and ethical investing niche.
He says most people would favour financial services that are easily accessible, affordable, transparent and secure.
“Wahed brings a fresh and new way of ethical investment that pairs the latest in technology with that allows investors to access their account at a touch of a button, any time, anywhere, ” Syakir says.
“Wahed provides a simplified wealth management service with generally low costs that meet investors’ expectations with technology to simplify their lives. They can get started relatively quickly. There’s no need to schedule calls and meetings during the day, no small talk, and no need to fill countless forms, ” he adds.
Wahed’s current portfolio allocation options include investments into US stocks, Malaysian stocks, sukuk (Islamic bonds), and gold. To ensure all returns are halal, Wahed has a full-time syariah advisory board, which undertakes a rigorous screening process and produces annual purification reports (zakat).
With Wahed, an investor’s portfolio is decided based on his or her input, such as age, financial situation and attitude towards investing.
“So, for example, a young professional who is a high-income earner, who is investing for the long term, and is unlikely to withdraw his or her investment when there is a 10%-20% volatility to his/her investment portfolio, will likely be recommended an ‘aggressive’ portfolio which has a high proportion of the portfolio invested into US and Malaysian stocks, ” he explains.
“On the other hand, for people who are saving for retirement and cannot deal with a volatility of 10%-20% of their investment portfolio, they would likely be recommended a ‘very conservative’ portfolio, which has a higher exposure in sukuk, ” he adds.
Syakir reveals the portfolios are rigorously backtested, taking into account their long-term performance and standard deviation, to provide Wahed investors with the most suitable investment for their risk profile.
“Therefore, the allocations are not affected by short-term macro trends, ” he points out.
“Nonetheless, if there is a significant change in the long-term capital market assumptions of the markets that Wahed’s investors are exposed to, and if there is a case to shift the allocations of the assets, it will be discussed and approved by our Investment Committee members, ” he adds.
Since its launch at the end of October 2019, Wahed’s investors have seen returns varying between 1.9% (for “very conservative” portfolio) and 10.7% (for “very aggressive” portfolios).
On how they fare vis-à-vis unit trust funds, Wahed says: “A direct comparison with unit trusts does not tell the full story, given that our portfolios invest in passive instruments while unit trusts are managed actively.”
“However, in general, our more aggressive portfolios with higher exposure in equities perform in line, if not better (net of fees) than the locally available unit trusts between Oct 29,2019, and Jan 8,2020, ” he adds.
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