Dhruv Arora has had a long and illustrious career with Swiss investment bank, UBS. He shared in the interview that the career was fulfilling and rewarding, but serving the top 1% rich in the world wasn’t satisfying enough for him eventually. He wanted to bring high quality investment products to the man on the street and technology has enabled his dream to come true. He also wanted to create employment for others instead of working for someone. Starting Syfe enabled him to achieve all these and hence he took up the challenge and never looked back.
Below is a video recording of the interview. You can read on for the summary of our discussion.
Syfe is licensed by Monetary Authority of Singapore (MAS) to offer roboadvisory services in Singapore. It is focused on the investment aspect of advisory and currently offers 3 portfolios for individuals to choose from. The cost is dependent on the amount of money you have invested, and not based on the portfolio you have chosen to invest in. This is simpler for the customer to understand rather than varying fees for each product. There are 3 tiers of charges. The fee is 0.65% for amounts below S$20,000. The fee goes lower to 0.5% after S$20,000 and lowest at 0.4% if there’s more than S$100,000 invested.
Most importantly, you would want to understand how do the portfolios work and how does Syfe manage them.
Global ARI: A Risk Parity Hedge Fund Strategy
I learned that this Global ARI Portfolio employs risk parity. This is unusual because only hedge funds do risk parity and only high net worth individuals or institutions can have access to the strategy. This is the first time I see it being made available for retail investors. Typically hedge funds charge a 2% management fee and 20% performance fee. Syfe charging 0.4% to 0.65% for an advance portfolio strategy like risk parity is a steal.
Previously, Dr Wealth ran a course with ex-hedge fund managers to teach this strategy. It is an elegant approach whereby each asset weight is sized by risk exposure instead of a static target weights. A risk parity portfolio is dynamic and the asset weights adjust to ensure the risks are ‘matched’. Such portfolios tend to do well in times of crisis and are often conferred with the ‘all-weather portfolio’ title. Trust me, you need strong modelling skills to even do risk parity by yourself. I couldn’t. Unless you crave the control, it makes more economic sense to invest in Global ARI instead because your man hours are definitely worth much more than the fees you pay.
Dhruv said this is his favourite portfolio and has most of his investment dollars in it. REIT+ and Equity100 are his satellite portfolios. I think that Global ARI would be the top choice if you want to invest in only one portfolio because it is properly diversified into many asset classes. The other two portfolios are focused on REITs and stocks without any bonds or commodities as diversification, hence you might be taking too much equity risk if you do not have other investment assets outside of Syfe.
REIT+: Direct Replication With No ETF Fees
Most roboadvisors use ETFs to build portfolios for their clients so it is rare for Syfe to invest directly into REITs. The disadvantage of using ETFs is higher total fees for the investors because both the ETFs and roboadvisors would charge management fees. Hence, direct investments into individual securities would avoid one layer of fees and save investors more money.
That said, Syfe doesn’t make discretionary trades but replicates the iEdge S-REIT 20 Index. Syfe simply invests according to the picks and weights of the REIT components in the index. The index is a rather new one and was created by SGX. As the name suggests, there are 20 REITs in this index and the greatest weights are in Ascendas REIT, Capitaland Commercial Trust, CapitaMall Trust, Mapletree Commercial Trust and Mapletree Logistics Trust. The dividend yield was 5.61% (as at 31 Mar 2020) which is decent considering you do not need to do any stock picking. You can refer to SGX website to find out more about the index.
I was intrigued by the direct replication and thought that this may make ETFs redundant if roboadvisors can do this at a larger scale. Dhruv told me that ETFs would increasingly be important as roboadvisors grow in size. This is because ETFs are still preferred if the underlying securities are difficult to access directly at low costs – it could be due to low liquidity, lack of economies of scale, or for bond products which can only be accessible to institutions.
Dhruv mentioned that reinvesting REIT dividends as soon as you receive them would increase the returns by about 0.5% per year. That’s equivalent to covering the roboadvisory fees! However, reinvesting dividends can be a hassle because you would need to do it manually if you buy the REITs on your own. Moreover, it may not be economic to do so if the dividends are too little to justify for the transaction fees involved. Syfe has an option to automatically reinvest the dividends if you do not need the cash. You pay roboadvisors for convenience besides the advisory fee. I know of some individuals who have no interest in investing and would appreciate that this aspect of investing is being taken care of for them.
Dhruv shared that REIT+ is the most popular portfolio among investors given the strong interest since the launch of REIT+. It isn’t surprising because local investors crave dividends and love real estate.
Equity100: Smart Beta Methodology
This is the latest portfolio launched by Syfe. It invests 100% into global equity ETFs. The strategy to manage this portfolio is based on the smart beta approach. Syfe explains the approach here. I use factors as an initial screening criteria in my own investment process and they are pretty useful to have the odds on your side.
Initially, I thought that Syfe would be using smart beta ETFs but they prefer to build it from scratch by using popular index and sector ETFs. There are pros and cons for doing this. The advantage is that the ETF fees would be lower as smart beta ETFs tend to be more expensive than plain vanilla ETFs which have economies of scale. The disadvantage is that you may not be able to get a complete exposure to a certain factor because a typical ETF may be exposed to a blend of factors at any one time. Syfe has made that clear as they said “Equity100 is not purely a smart beta portfolio”.
There were 3 major factors highlighted for this portfolio. First, growth was preferred to value because of the latter’s underperformance for an extended period of time. Syfe uses the Invesco QQQ to provide exposure to growth and large-cap factors.
Second, large caps were preferred over the small caps. This is the easiest to replicate – a S&P 500 ETF would give exposure to large caps. Similar to the previous point, small caps have also seen poorer performance in recent years and Syfe decided the large caps are worthier plays now. But there are mid and small cap ETFs in their list so they may switch to smaller caps should the trend reverse.
Third, low-volatility. Syfe uses defensive sector ETFs such as Consumer Staples, Healthcare, Utilities, and Materials, which would continue to be in demand regardless of the economic cycle.
Syfe stated that the factor exposure would be dynamically managed. That means there might be some ‘factor timing’ in their process. The returns would be higher if done right but would suffer if the timing is off. Well, there’s a price for everything.
Conclusion
Syfe has some differentiators against other roboadvisors. It offers specialised portfolios with advanced strategies such as risk parity. Instead of using available off-the-shelf financial products from fund houses, it has built a smart beta portfolio from scratch and invests directly into REITs. It takes some knowledge to appreciate the differences.
Which one to choose?
If you only want to go for one portfolio, Global ARI should be the obvious choice because it offers diversification compared to the other two portfolios.
The REIT+ portfolio would be the choice if you only want Syfe to help you invest in REITs and nothing else. But it is important to know that REITs are a niche in the global stock market and your risk is concentrated.
Lastly, you can choose Equity100 if you are just looking for exposure to a pure equity portfolio. The volatility would be high but this should give you the best long term return. If you cannot stomach the ride, you should diversify into some bonds or add the Global ARI into your mix of investments.
If you are still confused, you can speak to Syfe’s human advisors for more guidance.
Only time will tell if the investments would work and you do need some faith to stick to them through the ups and downs in order to see the results. The good news is that you can try with small amounts to gain that confidence. There’s no minimum to start (ok, S$1 minimum) and the excuse of ‘no capital’ is no longer valid. There’s also no lockup period for your investments and you can withdraw your funds anytime.
You can get up to $100 bonus depending on the amount you invest by using DRWEALTH upon registration. Get started here.
Dr Wealth Bid and Ask interview series is a weekly live programme whereby we invite individuals who have created value to society and have good stories to share. They may be in the fields of personal finance, investing, entrepreneurship and more. Join us on the Dr Wealth Facebook Page each week for the live interviews!