Digital advice platform reacts to market volatility, automatically shifting investor assets into stocks or bonds depending on risk tolerance.
There's another robo-adviser in the market, but this one is the result of what its chief executive says the other platforms aren't doing: protecting clients against severe market downturns.
Huygens Capital Monday launched a direct-to-consumer platform that will give clients access to stocks along with predictive computer programs, or algorithms, designed to protect against serious declines. The platform carries a 1.25% annual management fee.
"My philosophy is having equity exposure versus diversified portfolio," said Walt Vester, chief executive of Huygens Capital. "I'm fine having that exposure so long as I have a warning of when downside volatility is great."
Three investment styles are available within the platform: pilot conservative tactical income and growth, which is a portfolio of government bonds and equity ETFs that repositions to reduce equity exposure in times of market stress; pilot tactical growth, which is a growth portfolio of ETFs that repositions to add government bond exposure and reduce equities when there's market stress; and pilot tactical aggressive growth, a more leveraged growth portfolio.
The algorithms can predict major downturns because the system monitors and reacts to hedging activity by institutional investors, measured by implied volatility on S&P 500 options, Mr. Vester explained. Based on volatility patterns, the algorithms will signal the robo-adviser to switch clients' portfolios the next day between either equity ETFs for offensive exposure or bond ETFs for defensive exposure. In the tactical pilot growth portfolio, for example, an offensive portfolio would include iShares Russell 2000 and Powershares S&P Low Vol index and a defensive portfolio would include iShares 10-year treasuries and Powershares S&P Low Vol index.
The system will make its decisions at market close every day.
He said that although existing robo-advisers are just the first wave of the robo market, they do have some valuable services, such as enabling clients to onboard easily and follow a straightforward process for creating portfolios. But they're focused simply on diversified portfolios, and portfolios that is actively manage risk.
"That, we think, is the natural evolution," Mr. Vester said.
It's certainly sets them apart.
"Given the immense competition in the robo space, a more active risk management approach during times of increased market volatility is a differentiator for new players in the space," said Matthew Fronczke, an analyst and engagement manager at research firm kasina.
The only drawback, he said, is that the algorithm does not put on or take off the hedge at the appropriate time.
Hedgeable, another robo-adviser in the market for both consumers and advisers, focuses on the downside, too. Mike Kane, chief executive of the platform, said it's what sets his company apart from all the others.
"We focus on it because it is the biggest need in the market," Mr. Kane said.
Mr. Kane said he is not worried about competition from any of the platforms, including Huygens Capital, that are bound to emerge in the market, including Huygens.
"I think it will be very, very difficult for all the copycats out there," Mr. Kane said. "A lot tried to copy and now people are seeing a lot of traction. We will step one step ahead."
An institutional version of the Huygens Capital robo-adviser for money managers came out a few months ago, Mr. Vester said.
