Quantifeed has partnered with Everbright Sun Hung Kai’s online investment service platform, EBSHK Direct, to launch a robo-advisor in Hong Kong that gives retail investors access to tailored thematic strategies.
The EBSHK Direct AI-Portfolio Investing platform uses smart analytics, algorithms and quantitative research to create portfolios for clients from a combination of Hong Kong stocks and exchange-traded funds.
For an initial investment starting at HK$20,000 (US$2,550), as well as a 0.99% annual fee, investors can select from a preset list of investment themes and strategies, including market and investment horizon choices, before being presented with a portfolio that reflects their investment preferences.
The platform will also regularly rebalance portfolios in order to ensure that the underlying strategy remains consistent through industry and market changes.
EBSHK Direct AI-Portfolio Investing currently has 13 investment portfolios available, created in partnership with Quantifeed, and it will also use Quantifeed’s QEngine technology to provide portfolio services, such as order management, rebalancing, tracking and research. There are plans to add U.S. stocks and U.S. ETFs to the robo-advisor as well, according to the press release.
The launch of the robo-advisor comes as banks and other financial institutions in Hong Kong are showing increased interest in launching their own digital distribution platforms.
CMB Wing Lung Bank is working with financial technology service provider Aqumon to launch a robo-advisor for retail investors in the city, while CITIC Bank International launched a pilot online investment advisory service last month.
Hong Kong-based Quantifeed, which received US$10 million in funding from Legg Mason and Cathay Financial Holding in 2018, specialises in creating white-label automated investment advisory platforms for financial institutions.
Last year, Quantifeed also established a partnership with Taiwan’s Cathay United Bank and its fund arm, Conning Asset Management, to design an investment platform for the bank that constructs portfolios from 2,000 mutual funds.
The company’s CEO and co-founder Alex Ypsilanti told Ignites Asia earlier this year that this type of business-to-business solution makes sense in Asia. Consumers in the region want their assets managed by a reputable financial institution, Ypsilanti said, and many firms in the robo-advisory space prefer to sell to these financial institutions due to their large existing distribution channels.
In addition to the robo-advisor, EBSHK Direct also operates an online trading platform for self-directed investors, allowing them to trade Hong Kong shares, Chinese A-shares, U.S. stocks, futures and stock options, and warrants, as well as execute margin financing, forex trading and money transfers.
EBSHK Direct is owned by EBSHKCL, the international business arm of Chinese securities brokerage Everbright Securities. Among its asset management, wealth management and brokerage, corporate finance and capital markets, and investment and structured financing businesses, and subsidiaries, EBSHKCL has about HK$121 billion in assets under management, custody or advice as of end-September.
The relative simplicity of the robo-advisor, where investors are limited to a number of preset options, could also be a key factor in the platform’s success.
In an Ignites Asia opinion piece in September, Ypsilanti said large financial institutions are seeing some success in rolling out “simple and engaging” digital platforms to their existing client base, as opposed to overwhelming them with a product that offered too many choices. “This is already widening the gap of success between big financial institutions and smaller business-to-consumer companies, which are struggling with client acquisition costs and do not enjoy the reputation, brand and trust of established players,” he wrote. The focus on Hong Kong stocks and ETFs, at least initially, should be more attractive to online investors in the territory as well.
Mikaal Abdulla, CEO of robo-advisor 8 Securities, told Ignites Asia last year that Hong Kong-dollar portfolios would appeal more to the younger investor base in Hong Kong, while Hong Kong-listed ETFs are in ready supply due to major firms like Vanguard and BlackRock having numerous products on the shelf.
The prevalence of high upfront commissions among bank distributors, however, which could be as high as 5% or 6%, is a roadblock for robo-advisors with ambitions to launch in Hong Kong, Abdulla said in the same interview.
Quantifeed’s Ypsilanti confirmed that this potential cannibalisation of high-margin business is something most financial institutions in Asia have to address when thinking about getting into the robo-advisory space.
The spectre of big tech companies entering the online wealth management space has spurred some institutions to go into robo-advisory anyway, he added, even if it means disrupting their own business.