Robo fund selectors could struggle to disrupt companies that provide data services and research to Asia’s asset managers and owners, despite their focus on crunching quantitative data quickly, argue market experts.
The introduction of automated product pickers, which use algorithms to compare and analyse the performance of funds, is seen by private banks as being more likely to supplement than replace human fund pickers, as we reported in part one of this article.
Some industry onlookers argue that automated platforms could instead challenge data service providers, such as Morningstar, which rates funds based on past performances, and fund selectors tend to heavily use such research in their initial screening of funds. But Morningstar argues that it qualitatively analyses funds, in order to better pick outperformers.
“The way we approach picking funds is a qualitative process. It is a people business after all,” Wing Chan, director of manager research at Morningstar Asia, told AsianInvestor.
“When we assess portfolio managers, it is very hard to quantify how well the managers know the securities they hold, how well they work with the team. It helps by having direct manager access to build a conviction and put a rating on funds that could outperform peers.”
The research house says that, even in forward-looking analysis, it uses quantitative methods to help with some analysis, such as fees.
“It’s not a quantitative or qualitative thing, but how to leverage experience in both and come to a conclusion to put forward a best investment recommendation for clients,” said Chan.
Even in the quantitative analysis space, would-be robot disruptors may find it hard to gain business. Frank Troise, head of digital distribution and communication at Leonteq, a Swiss technology and service provider for investment solutions, is sceptical that robo-fund selectors can outdo dominant market players in research.
“I don’t see the value of robo fund selectors in the market because they are competing against well-established firms like Morningstar, who only have to adjust their pricing and any competitor is gone,” he said. “There is no upstart venture capital-backed firm that can compete with a brand like that.”
Nick Cheung, Morningstar's Asia chief executive, revealed it had a robo-advisory-like solution in early 2000, but it chose to forego the service. “We don’t believe we can build the best robo-advisory or selection solution for everyone. We are more keen to work with clients and help them build the best robo solutions,” he said.
Ultimately, well-constructed robo fund selectors have advantages. When well constructed, they should be able to excel at automatically identifying, tracking and assessing historical fund performance.
Those qualities will especially appeal to investors who like to base their investing approach on quantitative factors and cheaper services.
The future of fund selection might well be a combination of man and machine.
Please click here to read part one of this October magazine feature on robo fund selectors, which discusses their implications for Asia’s private banks.