Is AI the future for investing? Q&A with Exo Investing
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This month we meet with Lennart, CEO of Exo Investing.
We discuss how AI based investing might shape the future of the financial world, what benefits it brings and how Exo seeks to take this technology from the financial elite and open it to the masses.
Thanks for joining us Lennart!
SJ: Starting with a broad question do you see AI investing as the future?
We definitely see the use of AI as the future.
To ignore the potential of AI would be ill-advised. Just think about how AI is being used in our daily lives – whether we realise it or not:
Google Maps – Most of us understand that this uses algorithms to take a global data set, look at what you need and find the right answer.
But there are many more levels that we experience, but don’t really think about how it works. Think about real-time traffic reports based on other devices movement via GPS or on how your phone is calculating how quickly you normally walk along with how quickly you’re currently walking to update the ETA.
Spotify and Netflix – At its simplest, their use of AI considers what you’ve listened to or watched in the past to suggest other things you might like.
We can get our heads around that. But did you know they’re also using it to do things like test which type of images you interact with more, to help make an item more appealing?
Or that Netflix factors in what time of day it is when making suggestions – such as finishing an episode of something when it’s late at night, or starting a new film earlier in the evening?
Those are just some quick examples, but it features heavily in gaming, comparison sites and even things like translation tools where we’re approaching real-time in-ear language translation.
Overall, AI is changing our consumer lives for the better, but the disruption of wealth and finance is now overdue. And that’s what we’re here to do.
SJ: That’s great thanks Lennart, I had no idea my phone was recording how quickly I walk! Could you introduce Exo Investing?
Exo is the first AI-driven wealth manager for individual investors.
And it’s our use of AI that enables us to create individual portfolios for every client, that are tailored to their needs, preferences, and goals. We’re then also able to monitor every portfolio daily, optimising as necessary.
So with Exo, there’s are no set buckets to put you in, and no waiting for that quarterly or even annual email to say your portfolio’s been rebalanced.
As we like to say – ‘This is investing turned on its head’.
SJ: Is AI based investing a new trend or has it been around quietly for some time?
It’s existed in a number of ways already. The most common example is quant hedge funds and their quest to seek alpha. But private banks have also used it to manage the wealth of institutions and UHNWs for decades – creating bespoke portfolios to the client and managing them on an individual basis.
And it’s the latter unique portfolio creation and individual risk management technology that we’re bringing to the retail market.
To do all of this we’ve partnered with ETS Asset Management Factory, who launched back in 1987, and now has over €14bn under advice for large institutions.
SJ: What benefits does Exo offer in comparison to a manual investing approach?
We believe we have three core benefits:
- Peace of mind
With Exo, you don’t have to keep an eye on the markets, figuring out what a movement means for your portfolio, or waking up in a panic after seeing a Trump tweet. Exo has your back, checking your portfolio daily. It’s the wealth manager that never takes a break.
Other online platforms put you in a set bucket based your risk. With Exo, your portfolio is created uniquely for you, taking into account not only your attitude to risk, but your goals and preferences as well.
The average DIY investor spends around 3 hours per week managing their portfolio. With Exo keeping an eye on your portfolio, you’ll get that precious time back.
Outside of these, it’s worth addressing processing power. A benefit of Exo’s approach is that the human brain simply can’t process the same amount of information that sophisticated algorithms can.
Without getting too deep, for every decision Exo makes, it analyses over 2.5 million data points, in fractions of a second.
A human could spend a week analysing one decision they need to make and not even come close to looking at anything close to that amount of information.
SJ: Interesting, especially in relation to the processing power. Are there any particular parts of the algorithms that are higher weighted than others?
This all depends on each individuals portfolio and their preferences. With Exo, you’re able to add in your investment preferences based on style, region, and sector. So the algorithms will put a higher weighting towards your preferences when optimal to do so.
We’ll soon be adding ‘strategies’ (such as socially responsible investing, technology, value, etc) which would put the relevant set parameters for each strategy around your portfolio. After launching this, we’ll also be looking at adding ‘down-weighting’ as we know some investors may not have anything they have a preference to include by up-weighting, but instead have things they’d like to down-weight.
SJ: What about past performance? Do you have any past performance stats or back-tested results?
We have back tested every single strategy significantly, but we all know markets can, or will, behave differently in the future and those stats could be misleading. In addition, our proposition means each portfolio is completely unique, so creating synthetic backtesting to artificially publish a general or average performance feels slightly disingenuous and possibly misleading.
Our proposition is not that AI will help you outperform the market, but that in the event of a market downturn, Exo will begin to reduce your exposure to risk and move you into more safe-haven assets.
So instead of performance, we prefer to focus on risk management, and our partner ETS has a great one having been operating and fine-tuning these algorithms for over 30 years.
Since opening their doors in 1987, they’ve successfully managed their clients’ wealth through a number of large-scale economic events.
Note: While we won’t show a single average, we do hope to be able to show more insight into how different types of portfolios act/react and perform. This is something we’re actively working on and hope to be able to show once we have more data and a longer track record of our own.
SJ: You mentioned the USP is risk management in particular in the event of a big market downturn. If it rebalances ahead of drawdowns, is it better to take an initial high risk/reward approach e.g. leaning towards small cap stocks?
This very much depends on the individual, however, in essence, regardless of what you’ve picked, we’ll always manage the portfolio based on the risk you’re willing to take. So our risk management system will override your preferences to ensure you aren’t holding something unfavorably at a time of poor market outlook.
This very much depends on the individual. While Exo is designed to manage risk, the focus is always on long-term planning, so someone who is taking a high-risk approach over the very long term (say 25 years) would see less reactive types of activity in the short term, possibly exposing them to losses knowing they have a longer outlook to make this back given their high-risk approach.
Comparatively, someone with a high-risk approach but a shorter term outlook (say 5 years) would likely see more activity and greater risk management taking place given the shorter time frame.
But obviously this can be a double edged sword, so if markets are particularly distressed, Exo will move your portfolio into more ‘safe haven’ assets, however, you could still see a negative return during the period.
SJ: Does the system foresee gains as well as pullbacks?
While primarily in place as a risk management tool, the principle of always ‘optimising’ a client’s portfolio works both ways.
Every individual’s portfolio will act differently based on their risk tolerance and preferences, but the overall answer is yes – where Exo sees opportunity, it will increase the risk exposure of certain assets (to the level you’re comfortable) to capitalise on growth opportunities.
SJ: You mentioned earlier a partnership with ETS who provide the algorithms, is this offered on an exclusive basis?
While ETS is our strategic partner, the founders of ETS are also some of our main investors. So any other partnerships ETS or Exo carry out would always take into account its effect on both parties given the dual relationship.
What charges are involved? In particular, are any fees made when rebalancing?
Exo has an all-inclusive annual fee of 0.75% up to £100k invested and 0.5% over £100k.
The fee is VAT inclusive and covers investment management as well as technology costs and custodian charges. The only additional cost is fund charges* directly incurred by ETF providers, currently averaging around 0.25% per annum.
There are no additional set-up fees, transaction costs or trading fees.
*Fund charges usually range from 0.07% to 0.75% per annum. At the moment, on average these funds have total expense ratios (TER) of 0.25% p.a. and these costs are deducted directly from the fund’s assets and are thus included in the price of the ETF – meaning this cost is factored into any decision Exo is making.
SJ: How much of one’s portfolio would Exo typically represent?
We launched Exo at the end of April this year, so it’s still too early to tell based on our current clients. With a £10,000 minimum investment (Exo have kindly put on a reduced minimum for Money Nest readers, scroll to the bottom of the post to discover more) we know we’re currently only likely seeing Exo used for a portion of a client’s overall wealth.
We expect this to grow as we expand Exo from its current form.
By adding in things like individual stocks and SIPP – we’ll not only manage more of their money but have to take more of their financial situation (e.g. mortgage/property ownership) into account in order to manage their portfolio effectively. And it’s in seeing the bigger picture that can really bring Exo to life and deliver a great, bespoke service to every client.
SJ: What’s the future got in store for Exo?
In time we plan to grow the platform to be able to take into account more of your overall portfolio, such as SIPP and individual stocks. While we don’t have set launch dates around either of these, they’re both listed as high priorities on our roadmap – which looks at the next 18 months, so they won’t be far away.
Looking at the SIPP in particular, at its core, it will use the same daily rebalancing and fully automatic asset allocation engine.
Getting a cohesive picture of the client’s total wealth situation is our goal, as that’s when Exo can really come to life.
SJ: Thanks Lennart, some great insights into both Exo Investing and the influence of AI. Where can our readers discover more?
We’re currently running a launch offer of a reduced minimum investment of £5,000, so you can find out more at www.exoinvesting.com and even play around with what your portfolio could look like before choosing to invest with their free portfolio preview.
On top of the reduced minimum investment, I’d also like to offer your readers 1 month fee free, which I’ll keep in place until the end of November. All you need to do is use one of the links provided here and you’ll have your first month managed completely free.