Local fintech startup 8 Securities launched Hong Kong’s first artificial intelligence financial advisor and wealth management app in late 2016.
About a year after App Chloe’s launch, the robo-advisor has generated an impressive return of over 16 percent for its aggressive portfolio and nearly 9 percent for its conservative portfolio, according to Mathias Helleu, the company’s co-founder and executive chairman.
“It was a good year,” Helleu said, adding that the portfolios run by Chloe is “diversified, low risk, and none of the ETFs in the portfolio is leveraged – it’s all cash.”
Asia, and especially Hong Kong, is seen as lagging other international markets on the adoption of robo-advisors.
Unless you have US$1 million to invest, access to a professionally managed global portfolio is out of reach for most investors. But 8 Securities, through Chloe, aims to remedy this situation. The app serves as the client’s personal robo-advisor, using machine learning to give investment advice.
With a capital of as little as HK$1,000, customers can create and automate professionally designed global portfolios that are constructed with exchange-traded funds (ETFs) listed in Hong Kong via the Chloe platform.
The service costs 0.88 percent annually for the accounts over HK$8,888, with no other fees or commissions, the company says.
“Chloe, with its principle of passive investing, is for everybody,” Helleu said. “Compare [Chloe] to your savings account, your MPF … I think people should consider making their money work against inflation erosion.”
Based on the user’s age, annual income and risk profile, Chloe “helps you assess your investment time horizon and objectives, set your investment goal with information on how much you need to deposit, how much you need to pay as installment,” he said.
In short, the robo-advisor will continue to coach, educate and advise the clients on their investments throughout the journey.
“The idea of passive investing is you don’t ask customers to choose individual ETFs,” Helleu explained. “8 Securities is partnering with a third-party asset management company, and once or twice a year, [Chloe] rebalances the customer’s portfolio based on the performance of different ETFs.”
Chloe would also rebalance a user’s portfolio if its valuation is affected by market fluctuations.
Let’s say, based on the user’s risk profile, 60 percent of the portfolio should be bonds and 40 percent equities. “When there is a market fluctuation that brings a more than 4 percent change to your portfolio valuation, then it will automatically rebalance,” he said.
Tradeflix and zero commission
While Chloe is “for everybody”, 8 Securities has a service for active investors who enjoy trading stocks: the commission-free trading platform Tradeflix.
“We have seen a strong increase in our trading volume and the number of accounts over the last 16 months since we started offering zero commission,” Helleu said.
Since the introduction of “$0 Commission” in early 2016, the company has seen a more than 1,100 percent increase in executed stock trades and a 700 percent increase in turnover.
“For both the Hong Kong and US markets, we are projecting a growth rate of over 100 percent in annual stock transactions over the next three years,” he said.
Showing no signs of slowing down, Helleu said that as of earlier date this year,
So far, the company has over 50,000 accounts, including those in Hong Kong and Japan, and the average balance in each customer’s account is US$10,000.
While most traditional brokers in Hong Kong are dealing with aging clients, 8 Securities’ clientele is mainly the younger generation, mostly in their 30s.
Commission-free trading on more than 15,000 Hong Kong, US and China shares and ETFs is the company’s biggest appeal, with around 60 percent of its Hong Kong clients using Tradeflix to invest in the US market.
“People always ask: ‘How do you make money?’ Well, one way is to offer margin trading to our customers,” Helleu said.
Almost all brokerages in the city offer margin trading, i.e., buying stock with loaned capital. But 8 Securities expects 30 to 40 percent of its clients to use the company’s margin trading service because its rates are “reasonable and competitive”, he said.
Helleu strongly believes the digital investing platform will continue to shake up an industry that is known for high fees and sales-driven advice.
“I think in five years, everybody will use digital solutions [in investing] because it is so much better than what [traditional service] offers today,” Helleu said.
Asked whether the company would accept bitcoin and other cryptocurrencies as payment for its services, Helleu, a former executive at E-Trade, said he would rather err on the side of caution.
“I have been in the market for a long time now, and I would be a little bit careful when it comes to this very hot topic, especially when the hit comes very quickly and very high,” he said. Besides, “I think our offering is wide enough – we focus on what we do.”
The Hong Kong-based startup has come a long way from its humble roots. Back in 2012, it had just pulled in US$8 million to build its stock trading app. Then the company expanded into the robo-advisor, and got a foothold in Japan with a licensed office in Tokyo.
Helleu revealed that to the company has so far raised a total of US$34 million since its founding in 2010, and counts leading fintech venture capital funds in the United States and China among its major supporters.
“There’s no immediate need for a new funding round, but we are open to any opportunity,” he said. “A strategic investment would make sense if it happens.”
Asked about plans for an initial public offering, amid a wave of tech listings in Hong Kong recently, Helleu said the company is currently focused on growing the business.
However, “if we were going to IPO, Hong Kong would certainly be a destination of choice”, he said, adding that “that’s a decision we will make very carefully, and we are open-minded about that.”
8 Securities corporate website: www.8securities.com
– Contact us at [email protected]