Value context and insight. lkm@koreatimes.co.kr
Robot-advised funds outperform market
By Lee Kyung-min
By Lee Kyung-min
Robot-advised asset management with better-than-expected profit is emerging as a preferred alternative to risk-averse investors amid heightened volatility in the financial market, according to data and industry experts, Friday.
Also referred to as robo-advisers, the class of financial advisers provide investment management online. Executed by mathematical rules or algorithms, these require only minimal to moderate human intervention.
According to data from FnGuide, a financial information provider, 12 robot-advised funds have generated an average of 8.16 percent yield from Jan.1 to Oct. 1.
This is over double the figure from the benchmark Korea Stock Price Index (KOSPI) 200 which jumped 4.75 percent in the same period.
The handsome performance contrasts with the volatile stock market that underwent severe fluctuation amid the lingering uncertainties and negative developments of the global financial market.
Separate data from KOSCOM, developer and operator of the core IT systems in the Korean capital market and financial investment industry, showed 35 products recommended by robo-advisers based on differing risk preferences all generated yields over the past few months, all the while KOSPI, KOSPI 200 and secondary KOSDAQ all plummeted.
Between February and August, the machine-recommended products saw yields between 0.71 percent and 1.63 percent, while the KOSPI dropped 10.37 percent, KOSPI 200 8.74 percent and KOSDAQ 16.51 percent.
According to KOSCOM, about 1 trillion won ($840 million) in assets were managed by the robot-advised service in Korea in 2018, while the figure was 543 trillion won around the world in the same period.
The figure is expected to surpass 5 trillion won in Korea in 2020 and 18 trillion won in 2022, while that from around the world will be 1,442 trillion won and 2,232 trillion won, respectively.
Prospect brighter
The prospect is brighter for the budding service after the Financial Services Commission eased related regulation May 2019 to make it easier for asset management firms and brokerages use the help of artificial intelligence-mediated consultancy.
“Four financial services firms have adopted robo-advisers to boost profit as of now. The service is expected to grant more access to the broader customer base with lower cost,” Korea Capital Market Institute (KCMI) researcher Lee Sung-bok said in a July report.
More stable and responsible management will be possible given the dispassionate machines, unlike human beings, are not distracted by panic-induced surge of emotions, according to an expert.
“Machines by definition are not influenced by emotions and stay unaffected in the event of massive sell-offs. They operate according to an algorithm and algorithm only,” KCMI senior research fellow Lee Hyo-seob said.
Korean market embracing the new tech-mediated service is in line with global industry trends with key players nowadays increasingly prioritizing consults over seeking per-sales income, common in Europe and other countries with advanced financial market.
More firms are moving away from the commission-based services and toward fee-based ones.
Commission is paid upfront upon the sales of a certain financial product, while fees are paid sometime after the products have performed, according to KCMI's Lee.
“This trend began in 2013 in the U.K., followed by European countries in 2017 and 2018. Financial services firms including banks have long opted for commission-based charge for sales of high-risk products such as the scandal-ridden derivative-lined funds (DLF). But they are charging lower fees upfront and after the product matures,” he said.