Robo-advisor Scalable Capital launches in the UK

Aug 2nd, 2016 | By | Category: ETF and Index News

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European digital investment manager Scalable Capital has entered the UK market, opening its portfolio management business with portfolios constructed exclusively from exchange-traded funds. The move into the UK marks a key step in the firm’s ambitions to expand throughout Europe, having already established operations in Germany and Austria. The firm is the latest “robo-advisor” to enter the UK market.

Scalable Capital launch robo-advisor business in the UK

According to Scalable Capital, the use of ETFs in its portfolios has several benefits including enhanced diversification, lower costs, increased liquidity and transparency.

“The UK launch is a key milestone as we look to continue the strong growth of our business across Europe,” commented Adam French, Managing Director and co-Founder at Scalable Capital. “We are already one of the fastest growing digital investment managers in Europe and currently manage more than 1,200 client portfolios.”

According to Scalable Capital, the firm’s operational process involves an initial evaluation of its client’s risk tolerance, after which a tailor-made investment portfolio is constructed purely from ETFs, each targeting a specific asset class including equities, government bonds, corporate bonds, covered bonds, commodities, real estate and cash. The potential universe of ETFs invest in approximately 8,000 securities across 90 countries with each portfolio monitoring country and sector allocations to promote effective diversification.

“The initial response from UK clients has been overwhelmingly positive,” added Dr. Ella Rabener, CMO and UK co-Founder at Scalable Capital. “UK retail investors don’t just want a smooth online experience – they want an innovative investment service that offers a data-driven and more individually tailored approach to investing. That is what Scalable Capital provides.”

Scalable Capital notes that the exclusive use of ETFs in its portfolios, among other reasons, aid effective broad diversification, lower costs (the average total expense ratio of ETFs used by the firm is 0.25% per annum), while also maintaining high liquidity and transparency.

The firm’s investment strategy focuses on ensuring the risk preferences of its investors are met at all times, including during abnormal ‘stressed’ market conditions. One way the company achieves this is through using value-at-risk metrics at the core of its investment decisions. Value-at-risk analysis accounts for all previous market conditions and provides the investor with a concrete amount or percentage of their portfolio at risk of loss for a given probability (usually 5%) over the following year.  .

French explained that its technology-driven investment management service fills a vital need for retail investors: “…by putting risk management at the centre of our offering we aim to deliver superior risk-adjusted returns while keeping clients invested in the markets during periods of market volatility.

“We’ve received very positive feedback from clients in all countries following Brexit, as they saw this period as a litmus test for our risk management technology and are now confident to shift more assets into their accounts with us.”

Scalable Capital’s services are available at an all-in per annum fee of 0.75%, calculated on a daily basis. Investors must still bear the cost of holding each ETF (on average 0.25%), resulting in an approximate total fee of 1.00%.

Following the successful signing of a Series-A funding round of £5.6m in March 2016, taking the firm’s total funding to £8.8m, Scalable Capital has announced plans to build out Scalable Capital’s UK client base, as well as to fund selective expansion into new markets.

 

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